IMPACT OF FINANCIAL DEVELOPMENT AND FOREIGN DIRECT INVESTMENT ON THE ECONOMIC GROWTH OF SAARC MEMBER COUNTRIES: A SEGREGATED APPROACH

Abstract

This study investigates the impact of Financial Development (FD) and Foreign Direct Investment (FDI) on the Economic Growth (EG) of SAARC nations using panel data from 1995 to 2023. The data was collected from World Development Indicators. For data analysis, panel unit root tests, cointegration tests, panel Autoregressive Distributed Lag (ARDL) model and Granger causality tests were applied. The panel ARDL long-run estimates show that the variables employment rate, GCF, FDI, FD, and human capital are positively associated with the EG in SAARC countries whereas, the inflation rate is negatively associated with the EG in SAARC countries. The influence of employment rate, GCF, FDI, human capital, and inflation rate is found to be statistically significant. It implies that FDI and FD are imperative to improve the EG of SAARC countries. Therefore, the study suggests that FDI inflows and financial sector development should be encouraged to improve the economic growth of SAARC countries.