Introduction

CHAPTER 5

Policy and Operational Implications

Introduction

This report is framed within the same context as its predecessor, A Glass Half Full: The Promise of Regional Trade in South Asia (Kathuria 2018); that is, it explores the suboptimal level of engagement within South Asia. It focuses on investment, an important issue on which comprehensive regional research on South Asia has been scarce. The report highlights the emerging issue of knowledge connectivity and information barriers in the decision to trade and invest, which is particularly relevant to the region. Given trade-investment links, improving regional foreign direct investment (FDI) will also improve regional trade. Similarly, initiatives that promote trade, such as reducing trade costs, increase investment directly as well as indirectly through informational gains from trading. The report also highlights distortions in some countries’ outward investment arrangements.

To investigate the relationship between investment and information barriers, this report embarked on an extensive data-collection exercise that provided detailed information on 1,274 firms and entrepreneurs across all eight countries in the region. This firm-level survey enabled rich diagnostic and econometric exercises to be undertaken, which were combined with aggregate national data analysis and distillation of case studies of regional pioneers.

The analysis was conducted through an outward investment lens and highlights outward investment from emerging economies and the importance of information in investment decision-making. South Asian firms face high and varying information barriers, as documented by limited and polarized bilateral knowledge connectivity within South Asia. The results show that firm-level information, network availability, and