Revisiting growth fundamentals in SAARC: An empirical investigation of economic freedom, human development, and foreign direct investment

The South Asian Association for Regional Cooperation countries prioritised economic growth and development, but continued to face persistent challenges like poverty, inequality, and sluggish progress in attaining sustainability. Therefore, the purpose of the study was to examine the impact of economic freedom index, foreign direct investment, and human development index on economic growth of South Asian Association for Regional Cooperation countries from 2005 to 2023. Fully modified ordinary least squares regression method was used as estimating technique. The results showed that both the economic freedom index with Ø = 1.9895; p-value = 0.0000, and the human development index with Ø = 0.6901; p-value = 0.0020 had a positive and significant effects on economic growth, suggesting that higher levels of economic freedom in addition to having a more skilled, healthy, and productive workforce were associated with improved economic growth. In contrast, both foreign direct investment with Ø = -0.2981; p-value = 0.0000 and official development assistance with Ø = -5.4552; p-value = 0.0000 exhibited negative and significant effects on economic growth. When multinational corporations repatriating profits to their home countries rather than reinvesting them in the region, corruption exists in the management of foreign aids, this may limit the benefits of foreign direct investment in the region. This study concluded that economic freedom index, foreign direct investment, and human development index affected economic growth in the South Asian Association for Regional Cooperation region. Therefore, to sustain growth, governments of these countries should implement policies that improve market efficiency, reduce bureaucratic bottlenecks, and strengthen legal institutions to attract high-quality investments.