An analysis of the determinants of Foreign Direct Investment (FDI) inflow in Nepal

Abstract

Foreign Direct Investment (FDI) is widely recognized as a crucial factor in fostering economic growth and development in both developed and developing countries. Identifying major bottlenecks to FDI and promptly addressing them is crucial for creating an investment-friendly environment. This study aims to comprehensively review the key determinants influencing foreign direct investment (FDI) inflows in Nepal. Political stability emerges as a significant determinant affecting FDI inflows in Nepal. The study finds that an improvement of one point in the political stability index results in a 61.1% increase in FDI inflows. Conversely, increases in taxes on goods and services have a negative impact on FDI inflows. Furthermore, the analysis demonstrates a positive correlation between FDI inflows and infrastructure development. However, there is no substantial evidence of significant impacts from changes in minimum wages and trade openness on FDI inflows in Nepal.