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Examining the Dynamics of FDI and Total Factor Productivity in South Asia
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DOI：10.1007/s13132-026-03433-5.png)
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Abstract
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This research examines the impact of Foreign Direct Investment (FDI) on Total Factor Productivity (TFP) in Bangladesh, Pakistan, India, and Sri Lanka. The study also explores how Human Capital, Trade Openness, Government Expenditure, and Consumer Price Index affect TFP. Using Vector Error Correction Model (VECM) and Johansen co-integration techniques for the period 1982 to 2022, the analysis reveals that FDI significantly boosts TFP in South Asia. Long-term effects indicate that FDI, trade openness, government expenditure, education, and consumer price index positively influence TFP across these countries. Notably, the effect of human capital on TFP is negative for Bangladesh and Sri Lanka. To improve TFP and attract more foreign investment, these selected countries should enhance regional trade and develop economic strategies that encourage overseas investment. Given the labor-intensive nature of these economies, boosting labor productivity through targeted skill development is recommended.
Keywords:
Foreign direct investment
Total factor productivity
South Asian economies
Human capital
Trade openness
Government expenditure
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