South Asia is one of the fastest growing regions in the world. Yet, intraregional trade and investment is very low, suggesting that regional spillovers from individual country growth are muted. Much has been written about the low levels of intraregional trade in South Asia. Much less has been written about intraregional investment. Direct investment flows are important because multinational firms coordinating production along global value chains have become a dominant force driving both trade and investment flows. These flows are valued as a direct source of external capital and foreign exchange, as well as for the technology and knowledge spillovers they bring. Investment flows also tend to be more stable interactions than trade transactions, since they involve a deeper commitment (financial and otherwise) to engagement. This report is framed within the same context as its predecessor, "A Glass Half Full: The Promise of Regional Trade in South Asia," namely, the sub-optimal level of economic engagement within South Asia. It focuses on intraregional investment, from an outward investment lens, using a unifying framework of international engagement strategies (trade, investment, and other non-equity modes like licensing). There are several reasons why the report is relevant to South Asia's development: * It brings in the role of knowledge connectivity and information barriers, a much-neglected issue, into the decision to export or invest. This has powerful policy implications. * Given trade-investment linkages, improving regional FDI will also increase regional trade. * It addresses the lack of a dynamic network of regional value chains, which is related to the lack of intraregional FDI. * Regional engagement can also provide a springboard for a more global push, in both trade and investment. * Investment can be a major catalyst for trust-building. * Finally, the restrictions on outward FDI (OFDI) in many countries in South Asia restrain their dynamic firms, restrict regional value chains and are an increasing anomaly in an era of globalization, recent setbacks notwithstanding.
About the Author: The World Bank came into formal existence in 1945 following the international ratification of the Bretton Woods agreements. It is a vital source of financial and technical assistance to developing countries around the world. The organization's activities are focused on education, health, agriculture and rural development, environmental protection, establishing and enforcing regulations, infrastructure development, governance and legal institutions development. The World Bank is made up of two unique development institutions owned by its 185 Member Countries. The International Bank for Reconstruction and Development (IBRD) focuses on middle income and creditworthy poor countries and the International Development Association (IDA), which focuses on the poorest countries in the world.