Foreign direct investment and institutional quality: empirical evidence from South America

2019 ◽  
Vol 35 (2) ◽  
pp. 66-78 ◽  
Author(s):  
Victor Owusu-Nantwi
Keyword(s):  
Foreign Direct Investment ◽  
South America ◽  
Least Squares ◽  
Direct Investment ◽  
Institutional Quality ◽  
Ordinary Least Squares ◽  
Public Institution ◽  
Single Measure ◽  
Content Type ◽  
Domestic Capital

Purpose The purpose of this paper is to investigate the effect of institutional quality on foreign direct investment (FDI) flows in South America. Design/methodology/approach The study uses two-stage least squares (2SLS) and fixed effect ordinary least squares regression analyses to examine the relationship between institutional quality and FDI in South America. Findings The study finds a significant positive relationship between institutional quality index and FDI. This implies that improvements in the institutional quality relate to increases in the flow of FDI to South America. Domestic capital, GDP per capita growth, and trade positively relate to FDI. However, the coefficient of trade is not significant. This implies that increases in these variables relate to increases in FDI flows to South America. Practical implications The study recommends that quality of institutions matter to the flow of FDI and therefore, efficient institutional reforms should be a priority for policymakers as this creates a conducive investment environment to attract FDI in South America. Further, policies that are focused on promoting competition, open market, and effective non-corrupt public institution as well as open and transparent legal and regulatory regimes, and effective delivery of government services should be the priority of policymakers in South America (Mishra and Daly, 2007). Originality/value The study uses a single measure of institutional quality based on a broad set of institutional indicators. This broad measure of institutional quality differs from the available studies that mainly focused on single aspects of institutional quality, that is, either corruption, governance, or political risk.

Institutional quality and foreign direct investment in Ghana

2020 ◽  
Vol 30 (1) ◽  
pp. 109-122 ◽  
Author(s):  
Ibrahim Nandom Yakubu
Keyword(s):  
Foreign Direct Investment ◽  
Direct Investment ◽  
Institutional Quality ◽  
Principal Component ◽  
Political Stability ◽  
Single Measure ◽  
Content Type ◽  
Distributed Lag ◽  
Long Run ◽  
The Impact

Purpose This paper aims to investigate the impact of institutional quality on foreign direct investment (FDI) in Ghana for the period 1985-2016. Design/methodology/approach The study uses the autoregressive distributed lag (ARDL) approach to examine the relationship between institutional quality along with other controlled variables and FDI. Findings Evidence from the ARDL framework establishes a positive significant effect of institutional quality on FDI irrespective of the time horizon. The results also reveal a significant impact of inflation on FDI in both short and long run, while GDP per capita growth and trade are significant determinants only in the short run. Practical implications The study recommends the instigation of effective policies and strategies that seek to strengthen the quality of institutions, as this provides a conducive investment climate to attract FDI. Specifically, policies that are focused on promoting transparent legal regimes, regulatory reforms, non-corrupt institutions and political stability should be the precedence of policymakers. Originality/value In addition to being a pioneering work on the impact of institutional quality on FDI in Ghana, the main contribution of the study lies in its application of the principal component analysis to generate a single measure of institutional quality based on a number of institutional factors.

Factors influencing foreign direct investment in South Asian economies

2017 ◽  
Vol 6 (1) ◽  
pp. 8-37 ◽  
Author(s):  
Bishnu Kumar Adhikary
Keyword(s):  
Foreign Direct Investment ◽  
Least Squares ◽  
South Asian ◽  
Financial Stability ◽  
Direct Investment ◽  
Ordinary Least Squares ◽  
Estimation Methods ◽  
Market Size ◽  
Content Type ◽  
Asian Economies

Purpose The purpose of this paper is to investigate the macroeconomic determinants of foreign direct investment (FDI) for the top five South Asian economies, namely, Bangladesh, India, Pakistan, Sri Lanka, and Nepal, and to examine whether these factors are the same for each. Design/methodology/approach This study employs fully modified ordinary least squares and two-stage least squares estimation methods. Findings This study shows that South Asian economies have a number of FDI determinants in common. For example, market size and human capital are the two most common factors attracting FDI in each country (except for Nepal, which revealed a negative correlation between FDI and market size). Other factors, such as infrastructure, domestic investment, lending rates, exchange rates, inflation, financial stability/crisis, and stock turnover entered into regression with both positive and negative signs, thereby indicating that the underlying theories on FDI do not provide a clear prediction of the direction of the effect of a particular variable on FDI. Research limitations/implications This paper studied the effects of demand-side factors on FDI. A comparative study of the supply-side factors may add further knowledge. Practical implications This paper provides evidence to show that the determinants of FDI are indeed country-specific. Thus, to design a suitable FDI policy, it would not be wise to solely rely on other economies’ FDI experiences. Originality/value This paper provides updated evidence on factors that are essential to promoting or deterring FDI in South Asian economies.

scholarly journals The impact of financial sector reforms on foreign direct investment in an emerging economy: empirical evidence from Ghana

2020 ◽  
Vol 2 (4) ◽  
pp. 271-284
Author(s):  
Kofi Kamasa ◽  
Isaac Mochiah ◽  
Andrews Kingsley Doku ◽  
Priscilla Forson
Keyword(s):  
Foreign Direct Investment ◽  
Empirical Evidence ◽  
Direct Investment ◽  
Least Squares Method ◽  
Financial Sector ◽  
Ordinary Least Squares ◽  
Sector Reform ◽  
Content Type ◽  
Financial Sector Reform ◽  
The Impact

Purpose This paper aims to empirically investigate the impact that financial sector reforms have on foreign direct investment (FDI) in Ghana. Design/methodology/approach Composite financial sector reform index was constructed, which was made up of various forms of reform policies that were implemented from 1987 to 2016. The auto regressive distributed lag bounds test was used to establish cointegration between variables. Having controlled for other covariates that affect FDI such as trade openness, exchange rate, gross domestic product per capita, inflation and by using the fully modified ordinary least squares method, the estimations are robust as it uses a semi-parametric correction to avoid for any possible issues of endogeneity and serial correlation. Findings Results from the paper reveal that financial sector reform deepening boost FDI with a 2.167% increase in FDI following from a unit percentage improvement of the financial sector reforms. Considering the various categories of reforms, the results reveal that competitive reforms have the highest impact on FDI followed by privatization reforms with positive and significant elasticity coefficients of 2.174% and 0.726%, respectively. Behavioral reforms revealed a positive effect on FDI, albeit insignificant. Originality/value The paper contributes to policy by providing empirical evidence on the effect of financial sector reform on FDI inflows in Ghana. As far as the review of literature is concerned, this paper provides the foremost empirical evidence on the subject with sole emphasis on Ghana. Thus, this paper suggests the deepening of the financial sector reforms, improving competition and maintaining macroeconomic stability.

scholarly journals The Impact of Foreign Direct Investment on Environment Degradation: Evidence from Emerging Markets in Asia

2019 ◽  
Vol 16 (9) ◽  
pp. 1636 ◽  
Author(s):  
Anh Hoang To ◽  
Dao Thi-Thieu Ha ◽  
Ha Minh Nguyen ◽  
Duc Hong Vo
Keyword(s):  
Foreign Direct Investment ◽  
Emerging Markets ◽  
Least Squares ◽  
Direct Investment ◽  
Panel Cointegration ◽  
Ordinary Least Squares ◽  
Kuznets Curve ◽  
Strong Impact ◽  
The Impact ◽  
Environment Degradation

This study is conducted to examine the concerns of the foreign direct investment (FDI) causing environment degradation and also to test the validity of the traditional Environmental Kuznets Curve (EKC) in the context of emerging markets in the Asian region. Data of these countries from 1980–2016 are utilised. This study employs panel cointegration Fully Modified Ordinary Least Squares (FMOLS), which treats the endogeneity problem, and its estimators are adjusted for serial correlation. Moreover, this study also uses panel Dynamic Ordinary Least Squares (DOLS), which includes contemporaneous value, leads and, lags of the first difference of the regressors to correct endogeneity problems and serial correlations. Findings from this study indicate that the pollution heaven hypothesis and the EKC curve are generally valid in the region. In addition, FDI has a strong impact on the environment.

scholarly journals The Role of Foreign Direct Investment in Stock Market Development in Nigeria: A Test of Complementarity

2020 ◽  
Vol 12 (2) ◽  
pp. 175-186
Author(s):  
Gbenga Festus Babarinde ◽  
Keyword(s):  
Foreign Direct Investment ◽  
Stock Market ◽  
Least Squares ◽  
Granger Causality ◽  
Direct Investment ◽  
Ordinary Least Squares ◽  
Market Development ◽  
Stock Market Development ◽  
Nigerian Government

This paper examines the role of foreign direct investment (FDI) in stock marketdevelopment in Nigeria for the period 1981-2018 via Dynamic Ordinary Least Squares(DOLS)and pairwise Granger causality techniques. Empirical Öndings indicate that FDI plays apositive signiÖcant role in the development stock market in Nigeria. Also, a unidirectionalcausality áows from FDI to stock market development. This study concludes that FDI con-stitutes a catalyst to stock market development in Nigeria, which implies the complementaryrole of FDI in stock market. Therefore, Nigerian government should ensure investors-friendlymacroeconomic framework and implement policies to encourage ináows of FDI in Nigeria.

Does agricultural sector foreign direct investment promote economic growth of Pakistan? Evidence from cointegration and causality analysis

2019 ◽  
Vol 16 (4) ◽  
pp. 196-207 ◽  
Author(s):  
Abbas Ali Chandio ◽  
Amir Ali Mirani ◽  
Rashid Usman Shar
Keyword(s):  
Economic Growth ◽  
Foreign Direct Investment ◽  
Empirical Study ◽  
Least Squares ◽  
Granger Causality ◽  
Direct Investment ◽  
Agricultural Sector ◽  
Content Type ◽  
Long Run ◽  
Johansen Cointegration

Purpose The purpose of this paper is to examine the linkage between agricultural sector foreign direct investment (FDI) and economic growth in Pakistan over the period from 1991 to 2013. Design/methodology/approach In this study, the stationary analysis is performed by using Phillips–Perron and Dickey–Fuller generalized least squares unit root tests and Johansen cointegration technique to determine the long-run linkage among the studied variables. The robustness of long-run linkage is checked by employing autoregressive distributed lag (ARDL) approach, dynamic ordinary least squares (DOLS), fully modified ordinary least square method (FMOLS) and the canonical cointegration regression (CCR). The causal linkage between the selected variables is investigated by the VECM Granger causality test. Findings The results of the Johansen cointegration test confirmed a cointegrating association between the variables. In addition, the results of the ARDL, DOLS, FMOLS and CCR showed that agricultural sector FDI has a strong positive significant effect on economic growth in long run. Moreover, the findings of the present empirical study revealed that there exists bidirectional Granger causality between the agricultural sector FDI and economic growth in both short run and long run. Originality/value The present empirical study filled the literature gap of applying the Granger causality based on error-correction model to examine this relevant issue for Pakistan.

scholarly journals ANALISIS PENGARUH VARIABEL MAKRO EKONOMI TERHADAP KINERJA PASAR MODAL SYARIAH DI INDONESIA

Jurnal Ecogen ◽  
2019 ◽  
Vol 1 (3) ◽  
pp. 712
Author(s):  
Rahmi Wulandari ◽  
Yeniwati Yeniwati ◽  
Dewi Zaini Putri
Keyword(s):  
Foreign Direct Investment ◽  
Exchange Rates ◽  
Interest Rates ◽  
Least Squares ◽  
Capital Market ◽  
Stock Price ◽  
Direct Investment ◽  
Ordinary Least Squares ◽  
The Government ◽  
Inductive Analysis

This research aims to find out and analyze the influence of the peformance islamic capital market on inflation, exchange rates, interest rates and foreign direct investment in Indonesia. The type of research used is descriptive and associative research. The data in this study are secondary data from 2007-2016 Q1-Q4 with the quarter one to quarter four documentation and library data collection techniques.. Data analysis used is descriptive analysis and inductive analysis. In inductive analysis using the Ordinary least squares approach, there are several tests, namely: (1) Multicollinearity Test; (2) Autocorrelation Test; (3) Determination of heteroscedasticity; (4) Normality Test; (5) Multiple Leinear Analysis;Research results show that: (1) There is no significant effect of inflation on the islamic capital market; (2) There is an influence between the exchange rates that affect the islamic capital market; (3) There is no influence between interest rates (SBI) on the islamic capital market; (4) there is ian influence of foreign direct investment that affect the islamic capital market. Based on the results of this study it is suggested that the government should pay more attention to the condition of stock price movements in Indonesia Keywords: The peformance islamic capital market, inflasi, niliai tukar, suku bunga,, Foreign Direct Investment, Ordinary Least Squares  (OLS).

scholarly journals Globalisation and Economic Growth in West Africa

2021 ◽  
Author(s):  
Benjamin Wanger ◽  
Osman Nuri Aras
Keyword(s):  
Foreign Direct Investment ◽  
West Africa ◽  
Gross Domestic Product ◽  
Least Squares ◽  
Direct Investment ◽  
Ordinary Least Squares ◽  
Domestic Product ◽  
African Countries ◽  
Causality Test ◽  
Long Run

Abstract Economic integration among countries could be beneficial to trading partners if properly handled through appropriate regulation of production, distribution, and consumption. However, it appears developing countries often do not benefit from their relations with other countries at advanced stages of developed. It is in view of this that this research was conducted with concentration on West Africa. Panel Cointegration techniques including Fully Modified Ordinary Least Squares, Dynamic Ordinary Least Squares and Dumitrescu-Hurlin Panel Causality Test were applied using time series on Gross Domestic Product, Exports, Imports and Foreign Direct Investment of eight West African countries from 1960 – 2019. while a positive and significant long run causal relationship was found between Exports, Imports as aspects of globalisation and Gross Domestic Product, there was an observed negative long run relationship between Foreign Direct Investment and Gross Domestic Product. Export promotion, hight import tariffs, the local content initiative, liberal migration policies and strong regulatory machinery were recommended.JEL Codes: FGHO

Foreign direct investment and economic growth in South America

2019 ◽  
Vol 46 (2) ◽  
pp. 383-398 ◽  
Author(s):  
Victor Owusu-Nantwi ◽  
Christopher Erickson
Keyword(s):  
Economic Growth ◽  
Foreign Direct Investment ◽  
South America ◽  
Growth And Development ◽  
Direct Investment ◽  
Positive Impact ◽  
Cointegration Test ◽  
Content Type ◽  
Long Run ◽  
The Impact

Purpose The purpose of this paper is to investigate the impact of foreign direct investment (FDI) on economic growth in countries in South America. Additionally, the study explores the causal linkage between FDI and growth in the region. Design/methodology/approach The study employs Pedroni’s cointegration test to examine the long-run relationship between FDI and economic growth in South America. Further, the study employs the vector error correction model (VECM) to examine the long-run relationship, and the causal nexus between FDI and economic growth in South America for the period 1980–2015. Findings The Pedroni cointegration test establishes a long-run relationship between FDI and economic growth in a panel of ten countries in South America. The long-run estimates of the study find a significant positive impact of FDI on economic growth in the region. The VECM results find a short-run bidirectional causality between FDI and economic growth. The error-term is negative and significant. This indicates the presence of long-run equilibrium relationship among the variables. Practical implications Countries in South America should adopt policies that would substantially enlarge FDI inflows to enhance their growth and development. Originality/value Numerous studies have examined the impact of FDI on economic growth in the context of Latin America. This study fills a gap in the existing literature by providing an empirical evidence that focuses on South America. This additional perspective could form the basis for the evaluation of the investment policies, and help policymakers to pursue FDI policies that would enhance growth and development in South America.

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