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Trends and Determinants of Foreign Direct Investment in South AsiaLike many other developing countries,
 South Asian nations have been experiencing increased Foreign
 Direct Investment (FDI) inflows over the past decade as
 developing countries get a larger share of cross-border
 investments once sent to developed countries. Nonetheless,
 South Asia's FDI inflows remain the lowest relative to
 Gross Domestic Product (GDP) among developing country
 regions. Over the next 20 years, more than one million new
 workers will be entering the South Asian labor market each
 month as the region's youth bulge matures and seeks
 employment. To absorb these workers and provide higher
 living standards and reduce poverty, South Asian countries
 will have to rely on more than just public investment. This
 report looks into the historical patterns of FDI in South
 Asia, examines its sectoral composition, and evaluates
 current policies and policy options that may help create an
 environment for increasing FDI flows. The launching point
 for this study is the substantial empirical literature that
 suggests that FDI is associated with growth, development,
 and productivity enhancement. The goal of the study is
 modest in that it does not seek to estimate the size of FDI
 spillovers on productivity growth, or address whether
 governments should actively subsidize FDI inflows over
 domestic investment as a means to enhance growth, but rather
 to understand whether the level of FDI flows as a share of
 GDP, its sectoral composition, and intra-regional flows are
 comparable to other developing regions and, if not, what
 might be some of the impediments to these flows. While FDI
 flows have increased over the past decade to South Asia,
 particularly from developed countries to South Asian service
 sectors, it has lagged in other sectors and remains
 relatively low overall. Overall, positive changes have taken
 place over the past few decades, while restrictions on FDI
 differ substantially among countries in South Asia.
 India's progress on FDI promoting policies has
 accelerated in recent years to make FDI policies more
 transparent, predictable, and simpler. Many other countries
 have also taken steps to improve transparency in regulations
 and reassure investors about the security of their
 investments in the country. Finally, the paper examines the
 determinants of FDI growth in South Asia.
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Market Integration in ChinaOver the last three decades, China's product, labor, and capital markets have become gradually more integrated within its borders, although integration has been significantly slower for capital markets. There remains a significant urban-rural divide, and Chinese cities tend to be under-sized by international standards. China has also integrated globally, initially through the Special Economic Zones on the coast as launching grounds to connect with world markets, and subsequently through the accession to the World Trade Organization. For future policy considerations, this paper argues that its economic production needs to be spatially concentrated, and its social services need to be spread out to the interior to ensure harmonious development and domestic integration (through inclusive rural-urban transformations and effective territorial development).
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Where Is The Cheese? Synthesizing a Giant Literature on Causes and Consequences of Financial Sector DevelopmentA likely image of the current state of the literature on financial sector development is that of a Swiss cheese with many holes inside important areas of knowledge. The aim of this synthesis paper is to map the current knowledge and ignorance (i.e., holes) in the literature by providing a narrative for the empirical findings of a comprehensive literature review concerning the quantitative effects of financial development on economic growth and employment, and various determinants of financial sector development. The literature was restricted mostly to high-quality academic research that focuses on developing countries over the period 1960-2012. Because of data constraints, this review also includes cross-country analyses, in which developed and developing countries are considered together. The main findings include (i) a positive relationship between financial development and economic growth and employment, subject to a number of qualifications; (ii) a complicated relationship of regulations and supervision to financial sector development; and (iii) a positive relationship between an enabling institutional environment and financial sector development. This review also identifies some missing avenues in the literature and provides a number of suggestions for future work.