In this study, horizontal and vertical export-diversifying effect of foreign aid and foreign direct investment (FDI) is investigated on the south Asian developing economies- notably Bangladesh, Maldives, India, Pakistan and Srilanka for the time period 1995-2015.Due to proportional nature of dependent variable fractional logit model is applied and the empirical results reveal that foreign direct investment, natural resource abundance, growth rate and trade openness have significant impact on vertical export diversification while in case of horizontal export diversification foreign direct investment and natural resource abundance have significant impact. However foreign aid remains insignificant in both horizontal and vertical export diversification. From the results of the study it can also be inferred that vertical export diversification is affected more by foreign direct investment than that of horizontal export diversification Supervisor:- Dr. Attiya Yasmin Javid