Foreign Direct Investment and Industrial Competitiveness: A Panel Data Analysis of Selected Asian Economies

Abstract

Foreign direct investment (FDI) is widely recognized as a key driver of industrial competitiveness and economic growth. This study examines the impact of FDI, human capital, transport infrastructure, exchange rate, political stability, and research and development (R&D) on industrial competitiveness for six Asian economies—Pakistan, China, South Korea, Thailand, Malaysia, and Sri Lanka over the period 1996–2020. The study contributes to the literature by offering a unified empirical framework that integrates financial, human, infrastructural, and institutional determinants within a dynamic panel setting. Descriptive statistics indicate moderate variation across variables, while correlation analysis suggests a positive association between industrial competitiveness, FDI, and human capital. The Panel ARDL results confirm the existence of a long-run relationship among the variables. However, the long-run estimates reveal that most explanatory variables, including exchange rate and political stability, are statistically insignificant, suggesting weak transmission mechanisms in the selected economies. Furthermore, the Durbin–Hausman test is employed to determine the appropriate model specification. The findings imply that, despite theoretical expectations, macroeconomic and institutional factors have a limited long-run impact on industrial competitiveness in the sample countries. The study recommends that policymakers focus on enhancing the effective utilization of FDI, strengthening human capital, and improving infrastructure quality to promote industrial competitiveness, while also addressing structural constraints that hinder the effectiveness of macroeconomic stability and institutional quality.