ASSESSING THE IMPACT OF TRADE OPENNESS AND FOREIGN DIRECT INVESTMENT ON ECONOMIC GROWTH IN SOUTH ASIA: AN ECONOMETRIC ANALYSIS

Abstract

The study analyzes the impact of trade openness and foreign direct investment on economic growth in South Asia. The research uses a balanced panel dataset covering the time period from 2000 to 2023. The main determinants include population growth, gross fixed capital formation, human capital, and institutional quality.  The fixed-effects models are estimated using the Hausman test. For a robustness check, the control variables like inflation, globalization, and income inequality are analyzed. Driscoll-Kraay standard errors are used to account for heteroscedasticity and cross-sectional dependence. The baseline results indicate that the major drivers of growth are foreign direct investment, capital formation, human capital, and institutional quality, whereas trade openness and population growth indicate an adverse impact on economic growth. The results suggest that sustainable development depends more on reinforcing the country's core structural fundamentals than on trade liberalization in South Asia. The study recommends that governments may seek to attract productive foreign direct investment, build human capital, and improve institutional quality to sustain long-term economic growth.