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Attracting Foreign Direct Investment : What Can South Asia's Lack of Success Teach Other Developing Countries?Like many other developing countries,
 South Asian nations have been experiencing increased foreign
 direct investment inflows over the past decade as developing
 countries get a larger share of cross-border investments
 that were once sent to developed countries. Nonetheless,
 South Asia's inflows of foreign direct investment
 remain the lowest relative to gross domestic product among
 developing country regions. Why are South Asia's
 foreign direct investment inflows so low and what lessons
 can be drawn for developing countries as a whole? The
 analysis in this paper uses a novel empirical model that
 accounts for possible trends in convergence in the ratio of
 foreign direct investment to gross domestic product between
 countries and cross-sectional data for 78 countries from
 2000 to 2011. The sample contains 52 developing countries.
 The analysis finds that two key factors are at work -- high
 overall regulatory restrictions on foreign direct investment
 and specific restrictions placed on doing business with
 other countries. These factors include overall trade
 restrictiveness, which reduces the benefits to cross-border
 investments, and weak institutions to protect foreign
 investors and facilitate investment. Nonetheless, the
 potential for faster growth in intra- and inter-regional
 foreign direct investment flows is significant. The main
 factors leading to this conclusion are South Asia's
 current low levels of foreign direct investment, the many
 unexploited opportunities for embodied knowledge transfer,
 and supply-chain linkages. The overall lessons for
 developing countries are that liberalizing policy
 constraints in both trade and foreign investment, keeping
 corporate tax rates modest, and improving governance and
 transparency could help to substantially improve foreign
 direct investment flows.
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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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Growth Challenges for Latin AmericaLatin America faces the twin challenges
 of achieving economic growth and reducing extreme
 inequality. Notwithstanding the heterogeneity among Latin
 American countries (LACs), most of them exhibit both: (i)
 low average Gross Domestic Product (GDP) growth; and (ii)
 increased inequality during the 1980s. This long period
 includes the 'lost decade,' when outcomes in both
 variables were evidently negative. These negative trends
 have persisted since the early 1990s, in the period of
 intense reforms under the Washington consensus. The
 development gap (difference in GDP per capita or per worker
 between rich countries and LACs) and the equity gap have
 broadened in this period. The report evaluate: (a) the
 macroeconomic environment in which agents make their
 decisions (usually in LACs, under an economic activity
 operating significantly below potential GDP, with outlier
 macro-prices, and fluctuating aggregate demand); (b)
 features of financial reforms (usually intensive in
 short-term segments and weak financing of risk and long-term
 financing), and their implications for capital formation and
 the distribution of opportunities in the domestic economy;
 (c) features of trade reforms (intensive in resource-based
 exports but low total output of tradable); and (d) the
 distribution of productivities, which is closely linked to
 the narrow space granted for the development of small and
 medium enterprises (SMEs).