Religious Freedom, Foreign Direct Investment, and Economic Growth: Evidence from South Asian Countries

Abstract

The focus of the current study is to examine the enormous effects of religious freedom and foreign direct investment on economic growth for Pakistan, India, Bangladesh, and Sri Lanka. These effects are captured by investigating classical production functions where religious freedom and foreign direct investment are the major determinants of economic growth. To determine the significance of these determinants, the study examines the panel data from 1990-2016 gleaned from the World Development Indicator (WDI) and International Country Risk Guide (ICRG). The result of the Hausman test reveals the problem of endogeneity; thus, the model was empirically estimated by employing the 2SLS, and the robustness of the results was also confirmed by using the 3SLS methodology. The empirical result revealed that an increase in religious freedom surges economic activity and enhances growth. The coefficient of foreign direct investment indicates that a rise in foreign direct investment is beneficial for growth in the selected economies. These results confirm that economies with religious freedom attract foreign direct investment, boost their economic activity, and consequently, economic growth. Hence, the government should adopt those policies that promote religious freedom and enhance foreign direct investment to achieve sustained economic growth.