Role of governance in attracting foreign direct investment inflow: empirical evidence from South Asia region

Figures & data

Table 1. Variables of study.

Acronyms	Variables	Description	Role	References
FDI	Foreign direct investment	Foreign direct investment, net inflows (% of GDP)	Dependent	Wu et al. (2020); Azam and Haseeb (2021); Mitra and Abedin (2022)
CGI	Country governance index	Aggregate governance Voice and accountability Political stability Government effectiveness Regulatory quality Rule of law Control of corruption	Independent	Bah and Kpognon (2021); Fon and Alon (2022)
IFR	Inflation rate	Consumer prices (annual %)	Control	Boateng et al. (2015)
TDV	Trade volume	Log (Export + imports)	Control	Xu et al. (2021)
PGR	Population growth	Population growth (annual %)	Control	Dang and Nguyen (2021)
TLF	Total labor force	Log (Labor force, total)	Control	Mitra and Abedin (2022)
FSD	Financial development	Domestic credit to private sector by banks (% of GDP)	Control	Nguyen and Lee (2021)

Source: previous studies.

Figure 1. FDI inflow trend.

Table 2. Descriptive statistics.

	Mean	Median	Std. deviation	Maximum	Minimum
FDI	1.189	0.884	1.118	6.321	−0.675
CGI	−0.552	−0.310	0.168	0.590	−1.770
IFR	5.649	5.513	0.048	26.418	−18.108
TDV	10.363	10.227	0.041	12.071	8.653
PG	1.663	1.350	0.070	3.682	0.995
TLF	7.219	7.695	0.120	8.683	5.395
FSD	31.433	33.814	0.173	64.245	2.907

Abbreviations: FDI = foreign investment, CGI = country governance index, IFR = inflation rate, TDV = trade volume, PG = population growth, TLF = total labor force, FSD = financial sector development Source: own calculation.

Table 3. Mean values across the countries.

	FDI	CGI	IFR	TDV	PG	TLF	FSD
Afghanistan	1.211	−1.622	6.125	9.697	3.172	6.857	4.728
Bangladesh	0.877	−0.886	6.343	10.645	1.321	7.757	34.890
Bhutan	1.186	0.253	4.089	9.088	1.390	5.491	34.283
India	1.631	−0.230	6.161	11.727	1.374	8.652	44.650
Maldives	7.662	−0.208	3.336	9.487	3.316	5.169	32.277
Nepal	0.237	−0.779	6.455	9.819	0.981	7.149	47.231
Pakistan	1.178	−1.013	7.757	10.756	2.231	7.744	20.241
Sri Lanka	1.272	−0.273	7.948	10.413	0.777	6.909	35.504

Abbreviations: FDI = foreign investment, CGI = country governance index, IFR = inflation rate, TDV = trade volume, PG = population growth, TLF = total labor force, FSD = financial sector development Source: own calculation.

Table 4. Correlation analysis.

Variables	FDI	CGI	IFR	TDV	PG	TLF	FSD
FDI	1.000
CGI	0.095	1.000
IFR	0.177	−0.157	1.000
TDV	0.151	−0.097	0.186	1.000
PG	−0.123	−0.652	−0.048	−0.301	1.000
TLF	0.097	−0.275	0.168	0.757	−0.145	1.000
FSD	0.171	0.630	0.154	0.493	−0.853	0.298	1.000

Abbreviations: FDI = foreign investment, CGI = country governance index, IFR = inflation rate, TDV = trade volume, PG = population growth, TLF = total labor force, FSD = financial sector development Source: own calculation.

Table 5. Unit root testing.

	(Im, Pesaran and Shin W-stat)		(ADF – Fisher Chi-square)
	At level	At first difference	At level	At first difference
FDI	(−0.244) 0.403	(−1.195) 0.025***	(18.248) 0.309	(31.636) 0.011***
CGI	(−1.035) 0.105*	–	(23.682) 0.0.096*	–
IFR	(0.361) 0.641	(−2.225) 0.013***	(17.009) 0.256	(33.628) 0.002***
TDV	(1.749) 0.953	(−2.570) 0.005***	(6.888) 0.975	(33.985) 0.002***
PG	(−5.361) 0.000***	–	(53.641) 0.000***	–
TLF	(−0.214) 0.041***	–	(28.116) 0.030***	–
FSD	(−.930) 0.129	(−1.690) 0.045***	(4.028) 0.921	(30.240) 0.016***

Abbreviations: FDI = foreign investment, CGI = country governance index, IFR = inflation rate, TDV = trade volume, PG = population growth, TLF = total labor force, FSD = financial sector development Source: authors own calculation.

Table 6. Johansen cointegration test.

Kao residual cointegration test
Test name	t-statistics	Probability
ADF	−2.641	0.004
Residual variance	1.339	–
HAC variance	1.425	–

Note. The significant probability value rejects the null hypothesis, i.e. no cointegration exist. Source: self-estimation.

Table 7. Cross-section dependence test.

Test	Statistics	d.f	Probability
Breusch-Pagan LM	29.502	28	0.381
Pesaran scaled LM	−0.868	–	0.385
Pesaran CD	−0.857	–	0.391

Null hypothesis: No cross-section dependence in residuals, Source: author’s own estimation.

Table 8. Effect of governance on FDI inflow.

	FDI inflow as a dependent variable
	FMOLS		DOLS
Variables	Coefficients	Prob	Coefficients	Prob
Governance	0.407***	0.000	0.332***	0.024
Inflation rate	−0.030***	0.003	0.001	0.995
Trade volume	0.339***	0.000	2.121**	0.084
Population growth	0.741***	0.000	0.978***	0.029
Total labor force	0.048	0.550	1.705***	0.028
Financial development	0.026***	0.000	0.028**	0.051
Adjusted R-squared	0.216		0.362
S.E. of regression	0.908		1.651
Long-run variance	0.060		0.129

Note. ***, **, * indicate the significance level at 1%, 5%, and 10% relatively.

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Data availability statement

Data that support the findings of this study available at public domains name World Development Indicators, and World Governance Indicators, The World Bank.