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Foreign Direct Investment (FDI) is a sizeable investment made by an enterprise of one country into a firm in another country. Further, it enables the "giving" countries to access new markets and gain resources in the recipient countries.
FDI accelerates economic growth in several ways. First, by injecting the much-needed external capital, FDI bridges the gap between domestic savings and the required investment. Second, by transferring advanced technology (modern machinery, digital infrastructure, and advanced operational techniques) to the host countries, local firms can adopt those to increase their own efficiency. Third, by providing specialized training, foreign enterprises upgrade the skills and productivity of the workforce in the host countries, that helps domestic businesses to improve product quality and lower prices to remain competitive. Fourth, FDI helps in integrating host countries into global markets and international supply chains.
The world's leading destination for FDI, Asia, received overUS$ 600billionin 2025(two-fifths of global inflows), with major investments going into manufacturing, semiconductors, renewable energy, and technology-driven sectors.
East Asia received US$ 260 billion FDI in 2025 that is contributing to strong growth in high-tech manufacturing and service sectors. China and Hong Kong are the major recipients and investors. China is successfully investing in electric vehicle supply chains, green energy, and high-value-added manufacturing. Singapore is China's largest cumulative source of foreign investment, alongside Japan, South Korea, and Western economies. Japan and South Korea are major sources of outbound FDI, driven by high-tech and automobile industries.
Southeast Asia received $226 billion (17 per cent of global FDI) in 2025. Thousands of Japanese companies (e.g., Intel, Toyota, Honda and Sony) operate advanced manufacturing facilities across Southeast Asia. Key hubs in the region are Singapore, Indonesia, Vietnam, Malaysia and Thailand. Singapore receives the largest source of FDI from the United States (US) into high-tech manufacturing and financial services. While China, Hong Kong and Japan continue to dominate the total FDI stock in East Asia, investors are increasingly shifting production to Southeast Asian countries to mitigate geopolitical risks. Vietnam attracts substantial capital into manufacturing and technology growth from Asia, Europe and the US. Indonesia and Thailand are leading recipients within ASEAN for manufacturing and supply chain expansion. Malaysia is a global hub for semiconductors, with heavy investments from Intel and AT&S. By increasing openness in manufacturing and tourism sectors, The Philippines is successfully attracting FDI from Japan, the US, South Korea, and Singapore. By offering some of the most investor-friendly rules in the ASEAN region, Cambodia is attracting FDI from China, South Korea, Japan and Vietnam. Furthermore, the region is seeing high intra-Asian FDI. China is a leading source of investment to neighbouring countries, overtaking Japan in some sectors. The shifting FDI landscape shows the region's increasing economic integration with East Asian countries that are heavily involved in both receiving and providing investment.
In South Asia, the absolute amount of FDI remains considerably low. It was only around US$ 60 billion in 2025, with India receiving over 80 percent of the total inflow. Although there are opportunities in mining and energy, FDI is severely limited in Afghanistan. By the end of 2025, total FDI stock in Bangladesh reached $20.6 billion; however, the annual inflow is less than a quarter of what is required by the country. FDI is highly concentrated in export-oriented textiles, telecommunications, banking, and energy by the UK-based Standard Chartered Bank, South Korean investments in EPZs, and multinational operations in the Dhaka EPZ. On 16 June 2026, Bangladesh approved the Chinese Economic and Industrial Zone (CEIZ) in Chattogram, adjacent to the Karnaphuli Tunnel, within reach of Chattogram Port, and minutes away from Shah Amanat International Airport, providing tunnel access, port proximity, and air connectivity in one industrial zone. The target sectors include textiles, pharmaceuticals and light engineering. Bangladesh will benefit from FDI (US$ 500 million), additional job creation (100,000), and industrial diversification. In Bhutan, FDI is concentrated in the services, information technology, and manufacturing sectors, with India being the primary source of FDI. India is the primary hub for FDI in South Asia. It received US$ 1.14 trillion between April 2000 and December 2025. Singapore, Mauritius, the Netherlands, Japan, France and the US are the major sources. Nepal's FDI is dominated by Indian and Chinese enterprises in telecom, hydropower, manufacturing, tourism and hospitality. India is the predominant investor in the Maldives. The tourism sector is the primary recipient of FDI, followed by infrastructure sectors, transport, construction, renewable energy, finance, and telecommunications. In Pakistan, the dominant investor is China (energy, telecommunications and financial business), followed by Toyota, Atlas Honda, and Nestle. In Sri Lanka, FDI is expected to grow to around US$2 billion in 2026. Key sectors include manufacturing, tourism, and infrastructure.
Successful FDI in Asia is due to stable governance, strategic manufacturing, and strong regional integration. Both East Asian and South East Asian countries successfully leveraged FDI by aligning capital inflows with long-term industrial policies; and by strengthening global supply chain diversification, upgrading infrastructure, a booming digital economy, advanced manufacturing, semiconductor, skilled workforce, proactive public-private partnerships, and stable regulatory environments. All these contributed to strong growth in high-tech manufacturing and service sectors. Although investment remains strong in East Asia, there are challenges of geopolitical tensions, rising protectionism, and tariff escalations. The South East Asian region faces similar challenges. The South Asian region faces major challenges because of global uncertainties, infrastructure gaps, poor business environment, administrative bottlenecks, political instability, weak financial systems, domestic political environment, and lack of regional cooperation. However, the major South Asian countries are increasingly liberalising policies and providing incentives to improve their investment environment to attract more FDI.
To attract more FDI, Bangladesh has taken a number of initiatives, including the FDI Incentive Scheme, digital "One-Stop" Services, simplified profit repatriation, and easier procedures for capital remittances. Inflows in India are driven by global demand for digital infrastructure and an expanding base of skilled engineers, supported by the ease of doing business in manufacturing, infrastructure, energy, technology, computer software and hardware, telecommunications, and automobile. However, there are restrictions in so far as investments from China are concerned.
The Maldives allows 100 per cent foreign ownership, particularly in tourism and related infrastructure. The Special Economic Zones Act encourages projects exceeding US$ 100 million in export-oriented manufacturing, logistics, and specialized medical/IT facilities, although new regulations restrict foreign participation in wholesale and retail trade, maritime transport, and construction projects under US$ 15 million.
Despite having a large, untapped market, FDI remains low in Pakistan due to economic instability, high operational costs, administrative hurdles, and policy uncertainty. However, the government has been undertaking liberal investment initiatives such as allowing 100 per cent foreign equity and initiatives through Special Economic Zones to promote opportunities in technology, agriculture, and industrial sectors. In Sri Lanka, FDI is driven by improved macroeconomic stability and investor confidence.
Thus, to be able to attract more FDI, there is a strong need to overcome various impediments that stand in the way of creating an enabling business environment. This is particularly true of most South Asian countries like Bangladesh that receives less than one-quarter of what is required annually as FDI, and therefore, is not able to achieve its desired economic objectives.
Former Professor and Chairman, Department of Economics, University of Dhaka, Professor Barkat-e-Khuda, PhD, also held senior positions in several international organisations, including ICDDR,B.