Rahim Quazi

Economic Freedom and Foreign Direct Investment in East Asia

Abstract Since the early 1980s, developing countries have generally welcomed FDI, recognizing its manifold benefits, such as provision of capital, transfer of technology, etc. An extensive literature has evolved on FDI that identifies a number of variables, such as market size, trade openness, etc, as its key determinants. Domestic investment climate as a determinant of FDI has been excluded from the literature as reliable data on investment climate are generally unavailable. This study seeks to fill that void by using the economic freedom index, published since 1995 by The Heritage Foundation/Wall Street Journal, as a proxy for domestic investment climate for a sample of seven East Asian countries over the 1995–2000 period. Employing panel regression methodologies, this study finds that economic freedom is a significant and robust determinant of FDI. These results further our knowledge of the FDI dynamics in East Asia, which should be helpful in devising strategies to attract more FDI into that region.

Determinants of Capital Flight: An econometric case study of Bangladesh

While Bangladesh remains steeped in staggering external debt, it is also concurrently witnessing a substantial outflow of domestic capital. This situation raises serious policy concerns for its development prospects. This paper applies the Bounds testing and the Autoregressive Distributed Lag procedures to confirm the existence of a long-run equilibrium relationship between capital flight and its determinants, and to estimate the long-run and short-run behavior of capital flight from Bangladesh. The estimated results suggest that political instability is the single most significant cause of capital flight from Bangladesh, while increases in corporate income taxes, higher real interest rate differentials between the capital-haven countries and Bangladesh, and lower GDP growth rates also significantly contribute to capital flight.

Effects of Foreign Aid on GDP Growth and Fiscal Behavior: An Econometric Case Study of Bangladesh

This study estimates an aid-growth model and an aid-fiscal model to quantify the effects of foreign aid on GDP growth and fiscal behavior in Bangladesh over the 1973-1999 period. The aid-growth model applies the cointegration method to a neoclassical growth model and finds that aid has marginal effects on GDP growth, but when aid is disaggregated into loans and grants, it is found that loans significantly raise GDP growth, while grants do not. The aid-fiscal model employs a non-linear simultaneous model and finds that foreign grants mostly finance non-productive civil expenditures, but foreign loans generally finance public investment projects and human capital building programs, which eventually lead to higher output growth. 


Strategic water resources planning: A case study of Bangladesh

Many agrarian countries have heavily invested in large-scale water projects to promote their agricultural development. There have been, however, few attempts to devise strategic water resources planning accounting for the macroeconomic linkages ofagriculture. This article presents such a strategic water resourcesplanning framework for Bangladesh. First, a dynamic costminimization model is solved to compute the optimal investmentneeded in various water projects such that an agricultural growthtarget can be met. Next, the minimum cost solution is againderived accounting for the macroeconomic linkages of agriculture,which, under different macroeconomic scenarios, results innoticeably different policy implications for optimal waterplanning. These results suggest that the traditional sectoralapproaches of planning water investment projects are generallyinconsistent with the broader macroeconomic reality of Bangladesh.

FOREIGN AID AND CAPITAL FLIGHT

Over the years Bangladesh has received a massive inflow of foreign capital, mostly in the form of foreign aid, which has coincided with a substantial outflow of domestic capital. This flight of domestic capital from a capital-scarce country like Bangladesh undoubtedly poses a formidable hurdle to achieving its long-term development objectives. A hypothesis can be put forth that the inflow of foreign capital directly contributes to the outflow of domestic capital. This paper applies the Engle–Granger cointegration procedure to estimate the short-run dynamic and the long-run equilibrium behavior of capital flight from Bangladesh. The estimated results support the hypothesis that the inflow of foreign aid has in fact significantly contributed to the flight of domestic capital. Furthermore, the estimated results suggest that lower real GDP growth, increases in corporate taxes, financial repression and political instability also significantly contribute to capital flight from Bangladesh. These results yield crucial insights into the mechanics of capital flight from China, the source country of most flight capital in the Asia-Pacific region, that suggest that, regardless of the domestic investment environment, availability of foreign exchange, provided by either foreign aid or FDI, can support the flight of domestic capital abroad.

Corruption Contagion in South Asia and East Asia: An Econometric study

Many studies have analyzed the economic consequences of corruption using alternative economic theories. A new area of research has recently emerged that explores how one country’s corrupt practices spread to neighboring countries. It can be reasonably assumed that corruption is shaped by the culture or climate of doing business within a particular country, and these practices are shared to some extent by the neighboring countries. It is therefore possible for corruption to spread from one country to its neighbors, but the rate of corruption contagion should diminish with greater distance. This study estimates the impact of geographical distance on corruption for 16 emerging countries in South Asia and East Asia and finds that corruption contagion indeed diminishes with geographical distance, and that the rate of contagion is lower in East Asian countries.

Business Environment in South Asia: Foreign-Owned Firms’ Perspectives

This paper studies the foreign-owned firms’ (hereinafter, FOFs) perspectives about selected indicators of business environment in four South Asian countries - Bangladesh, India, Pakistan and Sri Lanka. For the last few decades, these countries have eagerly sought to increase the inflow of foreign capital. Using the World Bank’s Enterprise Survey 2017 data, this study identifies political instability, poor infrastructure, and pervasive corruption as the three biggest obstacles that FOFs face in their business operations in these countries. The other obstacles include inadequately educated workforce, customs and trade regulations, crime, theft and disorder, tax administration, business licensing and permits, and access to finance. This study also finds that since 2007 the business environment for FOFs has improved remarkably in Bangladesh, improved slightly in India, improved modestly in Sri Lanka, but worsened noticeably in Pakistan. This study adds to our knowledge of factors that affect the dynamics of foreign capital inflow, which should be helpful in devising strategies to attract more foreign capital to developing countries.

Foreign Aid and Quality of Governance in Latin America

While there is overwhelming evidence that governance has a significant impact on economic devlopment of a country, the findings of earlier studies on the effect of foreign aid on governance is often contradictory. In this paper, using panel data on 20 countries of Latin America for the period 1996-2014, we examined the impact of foreign aid on governance using the Random Effects and the Feasible Generalized Squares estimation techniques. The findings suggest that foreign aid has a positive influence on quality of governance. The empirical evidence is strong as the findings hold true not only when a composite measure of governance is employed in the model, but also generally when the six individual dimensions of governance are used. The study adds to the body of literarure on the subject and is especially important as many of the countries in the sample are significant recipients of foreign aid. Future studies may add to the existing literature by studying other regions where there is a significant flow of international aid.