Trend and Pattern of Foreign Direct Investment in Nepal (FY 1996/97-Fy 2016/17)

Abstract

Foreign direct investment is an investment made by a company or individual who has an entity in one country, in the form of controlling ownership in business interests in another country. FDI could be in the form of either establishing business operations or by entering into joint ventures by mergers and acquisitions, building new facilities etc. Foreign Direct Investment plays a significant role in the process of economic development. Funds from foreign countries could be invested in shares, properties, ownership / management or collaboration. The study is related to the analysis of trend and patterns of FDI in Nepal(FY 1996-FY2016). The study shows that FDI to Nepal during FY 1996/97-FY2015/16 is Rs 190,803.6 millions. Likewise, FDI has covered an average of 0.632 percent in the total GDP of Nepal. Out of total FDI, actual FDI is Rs.76943.9 million which is 41.37% of the total approved FDI. The volume of FDI to Nepal is taking a pattern of increasing and decreasing throughout the study period. Nepal has been receiving FDI in the various sectors. Due to the political instability and policy bottlenecks, there was low amount of FDI whereas with respect to time and political stability as well as various policy interventions for investment friendly environment the volume of FDI has started a rapid accent from 2008 FY. Nepal has been receiving FDI in various sectors like energy sector, manufacture sector, service sector, tourism, mining, agro and forest based sectors as well as construction sectors. Out of these sectors energy as well as service sectors are really attracting foreign investors. While looking after industries on the basis of scale of investment, small scale industries have been receiving large amount of FDI compared to medium and large scale industries. There are huge numbers of employment opportunities in small scale industries particularly in service and tourism sector employing large number of Nepalese as well as foreigners. From this we can see that contribution of FDI to Nepal is vital for economic development of the country. The study attempts to see the impact of FDI on GDP and trade, export and import of Nepal. The impact of FDI on GDP and trade are found to be positive and significant. Using regression analysis, it is found that there is positive impact of FDI on GDP. From the regression analysis the value of R 2 is 0.522 implying that predictor

FDI accounts 52.2 percent variation in the total GDP. The slope of FDI is 75.121 which imply that when FDI inflow increase by 1 million, GDP increases by 75.121millions. Similarly, there is positive correlation between FDI and trade. The value of R 2 is 0.567 implying that predictor FDI accounts 56.7 percent variation in the total trade. The slope of FDI is Rs 36.215 which imply that when FDI inflow increase by 1 million, trade increases by Rs 36.215 million. Likewise, the impact of FDI on export and import are found to be positive and significant. Using regression analysis, it is found that there is positive impact of FDI on export. The value of R vi

2 is 0.526 implying that predictor FDI accounts 52.6 percent variation in export. The slope of FDI is 2.072 which imply that when FDI inflow increase by Re.1 million, export increases by Rs.2.072 millions. Similarly, there is positive correlation between FDI and Import. The value of R 2 is 0.554 implying that predictor FDI accounts 55.4 percent variation in the total import. The slope of FDI is 34.143 which imply that when FDI inflow increase by Re.1 million, total import increases by Rs.34.143 millions. The amount of actual FDI is less compared to approved FDI due to the various reasons like political instability, legal uncertainties, policy hurdles, poor infrastructure, militancy of trade unions, etc. If such bottlenecks are solved then the amount actual FDI would be higher leading to the larger number of foreign investors not only for the market seeking but also resource seeking ones.