Trend and Pattern of Foreign Direct Investment in Nepal (FY 1996/97-Fy 2016/17)
Date
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Faculty of Economics
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.