Foreign Direct Investment And Its Economic Impact In Nepal

The study is aimed to explore the impact of Foreign Direct Investments (FDI) in economic growth of Nepal. Proponents of foreign direct investment such as development institutions, economists, academics and policy makers argued that foreign direct investment ensures efficient allocation of resources as compared to other forms of capital inflows. However, some literature suggests that the FDI inflows have a negative impact on economic growth of host countries. Although a large volume of econometric literature includes the impacts of FDI on economic growth in developing countries, not enough studies has been carried out on the question of linkage between them. Though there have been a few studies on the related topic for academic and non-academic purposes, these studies do not reflect the impact on economic development and the linkage sufficiently, thus it needs to study about this dynamic subject.Basically, three types of analysis-Theoretical analysis, Mathematical analysis and Attitude analysis has been carried out to find out the impact of FDI.In the theoretical analysis, Environmental Impacts, Infrastructural Impacts, Employ mental Impacts, Educational Impacts, Competition & Concentration Impacts, Magnitude Impacts, Speed of Technology transfer Impacts, Social & Cultural Impacts has been discussed.In the mathematical analysis, Ordinary Least Squares Model (OLS), Granger causality test Model along with Unit Root Test, and Co-integration and Error Correction Model (ECM) has been applied for the Nepalese data to find the economic impact in terms of GDP growth and for the comparison with domestic investment as well.In the attitude analysis, attitude towards the FDI factors have been collected from Nepalese People and existing/potential Foreign Investors by giving the Likert Scale; based on that Likert scale an index is formed and analysis has been done based on sector and duration of investment.Based on the study, the results found to be mixed with different aspects. From the social and cultural aspects, impacts of FDI found to be negative and rest of other aspects mentioned in our study founds to be positive and some of them both as well. From the economic point of view using the mathematical model, economic impact found to be weak and impact ceases after four years. From the attitude analysis of Nepalese people and foreign investor, the results seems to be quite optimistic and interested to the possible outcome of the FDI, the three biggest barrier for the FDI in Nepal are; political instability, corruption and lack of the effective investment policy. Lack of transparency and the poor infrastructure also seem to be playing significant roles in the foreign direct investment in Nepal. Most of the foreign investor are quite concerned about the current political instability of the country; cost factors and market factors are also quite important for the investors though not as significant as the political factors. Social and cultural factors are not really the big issues. Nepalese are relatively liberal in the religious and cultural issues that could be the reason of the out come.Nepal is a small landlocked country with limited resources, weak infrastructure and small market size. Besides this, development of FDI in Nepal is very complex task as it has to face the numerous challenges and obstacles. Nepal is still facing some problems for FDI because of lack of direct access to seaports, difficult land transport and lack of trained personnel, scarce raw materials, inadequate power, insufficient water supply, non transparent and capricious tax administration, obscure commercial legislation and unclear rules.On the other hand, political instability has been, for long time, suffering the economy most. Due to resource crunch. the government has not managed to create sufficient job opportunity which creates the youngsters to migrate other countries. Also there is lack of commitment, priority and vision on FDI development at the political level and lack of transparency of planning and project preparation at the level of bureaucrats.This study has been divided into eight chapters wherein the first chapter is devoted for introduction part with general review, statement and problem, objectives, significance, method and organization; second chapter is devoted for literature review and theoretical & historical aspects with FDI scenarios, theoretical concepts, theories, role and determinants; third chapter is for legal and institutional frameworks with global level, internal level and development level; similarly fourth chapter is devoted for advantage, opportunities, constraints, impacts and investment climate of FDI; chapter five is devoted for data analysis, model, results and findings; chapter six is for survey results of attitude analysis towards the FDI factors; chapter seven is for discussions and recommendations and chapter eight is devoted for conclusions, limitations and further study.