Financial depth and the trade openness-economic growth nexus

2017 ◽  
Vol 33 (1) ◽  
pp. 20-45
Author(s):  
Rudra P. Pradhan ◽  
Mak Arvin ◽  
John H. Hall ◽  
Sara E. Bennett ◽  
Sahar Bahmani
Keyword(s):  
Economic Growth ◽  
Foreign Direct Investment ◽  
Direct Investment ◽  
Trade Openness ◽  
Capital Formation ◽  
Content Type ◽  
Vector Autoregressive ◽  
Long Run ◽  
Financial Depth ◽  
Short Run

Purpose The purpose of this paper is to shed light on the age-old trade-and-economic-growth controversy. The authors do so by utilizing the data relating to the G-20 countries between 1988 and 2013. Design/methodology/approach The authors seek to establish the formal statistical links between openness to trade and economic growth in the context of interactions with financial depth, gross capital formation, and foreign direct investment. The authors use a panel vector autoregressive model to obtain the estimates. The authors check for the robustness of the results. Findings The authors find that all the variables are cointegrated. That is, there is a long-run equilibrium relationship between the variables. Moreover, trade openness, financial depth, gross capital formation, and foreign direct investment are all causative factors for the economic growth of the G-20 countries in the long run. At the same time, the short-run results demonstrate that there is a myriad of causal links between these variables. Practical implications The decision makers in the G-20 countries wishing to encourage economic growth in the long run should pay close attention to trade openness, financial depth, gross capital formation, and foreign direct investment inflows to their countries. Originality/value The authors study an important group of countries over a long span of time, using advanced panel data techniques. The results demonstrate that future studies on economic growth that do not simultaneously consider trade openness, financial depth, foreign direct investment, and gross capital formation will offer biased or misguided results.

scholarly journals How Trade Openness and Foreign Direct Investment Affect Economy of Pakistan

2021 ◽  
Vol 11 (2) ◽  
pp. 1641-1653
Author(s):  
Noreen Safdar
Keyword(s):  
Economic Growth ◽  
Foreign Direct Investment ◽  
Exchange Rate ◽  
Direct Investment ◽  
Trade Openness ◽  
Time Span ◽  
Independent Variables ◽  
Long Run ◽  
Short Run ◽  
The Growth Of Economy

This study is intended to find out how and to what extent FDI and trade openness affect the growth of economy in Pakistan for time span 1980-2018. To examine influence of FDI and trade openness, GDP was used by way of dependent variable whereas FDI, trade openness, exchange rate, and inflation are also taken as independent variables. The ARDL technique is employed in following study to estimate short-run and long-run results. This study concludes that TO have a positive momentous influence on GDP in both long and short run. While Foreign Direct Investment has an optimistic but irrelevant influence on GDP in Pakistan which demonstrates that TO has a more progressive influence on GDP of Pakistan than FDI. Other variables labor force and inflation harm economic growth while the exchange rate affects GDP positively. It is suggested by the study to enhance economic growth, govt should focus on liberalization of trade by reducing tariffs, customs duties, and other types of taxes on exports to enhance the economic growth of Pakistan.

Foreign Direct Investment, Financial Development, and Economic Growth Nexus in Bangladesh

2020 ◽  
pp. 056943452093867
Author(s):  
Md. Noman Siddikee ◽  
Mohammad Mafizur Rahman
Keyword(s):  
Economic Growth ◽  
Foreign Direct Investment ◽  
Financial Development ◽  
Direct Investment ◽  
Banking Sector ◽  
Negative Impact ◽  
Capital Formation ◽  
Long Run ◽  
Short Run ◽  
The Impact

This article aims to explore the short- and long-run impact of foreign direct investment (FDI), financial development (FD), capital formation, and the labor forces on the economic growth of Bangladesh. We applied the Granger causality test and Vector Error Correction Model (VECM) for this study. The World Bank data for the period of 1990–2018 are taken into account for the analysis. Our findings suggest, in the long run, capital formation has a positive impact, and in the short run, it has a negative impact on gross domestic product (GDP) implying a lack of higher efficiency is persisting in capital management. Similarly, labor forces have an insignificant impact in the short run and a negative impact in the long run on GDP, which confirms the presence of a huge number of unskilled laborers in the economy with inefficient allocation. The impact of FD is found tiny positive in the short run but large negative in the long run on GDP indicating vulnerability of banking sector. These also confirm fraudulence and inefficient use of the domestic credit supplied to the private sector. The impact of FDI is approximately null both in the short and long run, indicating Bangladesh fails to achieve the long-term benefits of FDI. Finally, this study suggests using FDI more in the capital intensive project of the public–private partnership venture than infrastructural development only and also improving the credit management policy of the banking sector. JEL Classifications: F21, F43, J21

scholarly journals The Influences of FDI, GFCF, OPEN on Vietnamese Economic Growth

2021 ◽  
Vol 12 (3) ◽  
pp. 1-13
Author(s):  
Toan Duc Le ◽  
Phu Huu Nguyen ◽  
Yen Thi Phi Ho ◽  
Thuyen Ngoc Nguyen
Keyword(s):  
Economic Growth ◽  
Foreign Direct Investment ◽  
World Bank ◽  
Direct Investment ◽  
Trade Openness ◽  
Capital Formation ◽  
Fixed Capital ◽  
Annual Data ◽  
Fixed Capital Formation ◽  
Short Run

The aim of study is to research the influences of Foreign Direct Investment (FDI), Gross Fixed Capital Formation (GFCF), Trade Openness of the Economy (OPEN) on Vietnam economic growth. This study uses the annual data for the period 1986 to 2019, obtained from World Bank and Vietnam General Statistics Office. The study shows that FDI, GFCF and OPEN together influence to Vietnam economic growth in the period 1986 – 2019 at significant level of 5%; in which the FDI and GFCF determinants have influenced greatly. In the short–run, the results indicate that there are bidirectional causality relationships running between FDI and GDP, OPEN and GDP, OPEN and GFCF, and there are undirectional causality relationships running from GDP to GFCF, from GFCF to FDI, from FDI to OPEN. The study’s results confirm that FDI as more reliable and less violate source of capital and can extend the Vietnam economic growth. According to the study’s results, the authors suggest some recommendations to increase the Vietnam economic growth.

scholarly journals The Influences of FDI, GFCF, OPEN on Vietnam Economic Growth

2021 ◽  
Vol 12 (3) ◽  
pp. 0-0
Keyword(s):  
Economic Growth ◽  
Foreign Direct Investment ◽  
World Bank ◽  
Direct Investment ◽  
Trade Openness ◽  
Capital Formation ◽  
Fixed Capital ◽  
Annual Data ◽  
Fixed Capital Formation ◽  
Short Run

The aim of study is to research the influences of Foreign Direct Investment (FDI), Gross Fixed Capital Formation (GFCF), Trade Openness of the Economy (OPEN) on Vietnam economic growth. This study uses the annual data for the period 1986 to 2019, obtained from World Bank and Vietnam General Statistics Office. The study shows that FDI, GFCF and OPEN together influence to Vietnam economic growth in the period 1986 – 2019 at significant level of 5%; in which the FDI and GFCF determinants have influenced greatly. In the short–run, the results indicate that there are bidirectional causality relationships running between FDI and GDP, OPEN and GDP, OPEN and GFCF, and there are undirectional causality relationships running from GDP to GFCF, from GFCF to FDI, from FDI to OPEN. The study’s results confirm that FDI as more reliable and less violate source of capital and can extend the Vietnam economic growth. According to the study’s results, the authors suggest some recommendations to increase the Vietnam economic growth.

Attaining economic growth through financial development and foreign direct investment

2019 ◽  
Vol 46 (6) ◽  
pp. 1201-1223 ◽  
Author(s):  
Rudra Pradhan ◽  
Mak B. Arvin ◽  
Sahar Bahmani ◽  
John H. Hall
Keyword(s):  
Economic Growth ◽  
Foreign Direct Investment ◽  
Financial Development ◽  
Direct Investment ◽  
Content Type ◽  
Vector Error Correction ◽  
Vector Error ◽  
Long Run ◽  
Financial Infrastructure ◽  
Short Run

Purpose The purpose of this paper is to consider the heterogeneous relationship among financial development, foreign direct investment (FDI) and economic growth, examining the possible directions of causality among them in both the short and long runs. Design/methodology/approach A sample of the G-20 countries over the period 1970–2016 is utilized. A vector error-correction model is used to consider the possible directions of causality among financial development, FDI and economic growth. Findings Results suggest a cointegrating relationship among the three series. Although short-run links among the variables are mostly non-uniform, both financial development and FDI matter in the determination of long-run economic growth. Practical implications Attention must be paid to policies that promote financial development. This, in turn, calls for fostering incentives to guarantee continued support to liberalize the economy and promoting capital openness. Additionally, financial infrastructure should be improved to improve financial innovation. The establishment of a well-developed financial market, including well-functioning banks and other financial institutions, can facilitate further investment and an easier means of raising capital to support the activities of FDI. Economic growth can ultimately be elevated through both financial development and FDI. Originality/value The study considers a sample of the G-20 countries, which have received relatively little attention in the existing literature. In addition, the study concurrently analyses the trivariate causal relationship among financial development, FDI and economic growth, a topic on which there has been a dearth of research.

scholarly journals Environmental sustainability, trade and economic growth in India: implications for public policy

2020 ◽  
Vol 4 (2) ◽  
pp. 141-160
Author(s):  
Aparna Sajeev ◽  
Simrit Kaur
Keyword(s):  
Economic Growth ◽  
Carbon Emissions ◽  
Direct Investment ◽  
Economic Freedom ◽  
Trade Openness ◽  
Online Database ◽  
Size Of Government ◽  
Content Type ◽  
Long Run ◽  
Short Run

PurposeBased on the hypothesis of the environmental Kuznets curve (EKC), the purpose of this study is to investigate the relationship between environmental pollutants (as measured by CO2 emissions) and GDP for India, over the period 1980–2012. The presence of an inverted “U” shape relationship is examined while controlling for factors such as the degree of trade openness, foreign direct investment, oil prices, the legal system and industrialization.Design/methodology/approachTo verify whether the EKC follows a linear, quadratic or polynomial form, autoregressive distributed lag (ARDL) bounds testing approach for cointegration with structural breaks is adopted. The annual time series data for carbon emissions (CO2), economic growth (GDP), industrial development (industrialization), foreign direct investment and trade openness have been obtained from World Development Indicators online database. Crude oil price (international price index) for the period is collected from the International Monetary Fund. Data for total petroleum consumption are collected from the US Energy Information Agency. Data for economic freedom variables are from the Fraser Institute's Economic Freedom Index's online database.FindingsThe findings support the existence of inverted U-shaped EKC in the short-run, but not in the long-run. A linear monotonic relationship has also been estimated in select model specifications. Additionally, trade openness has been estimated to reduce emissions in models, which incorporate FDI. Else, where significant, its impact on carbon emissions is adverse. A rise in fuel price leads to reduction in carbon emissions across model specifications. Further, the lower size of government degrades the environment both in the long-run and short-run.Practical implicationsGiven the existence of the pollution haven hypothesis, wherein more trade and foreign direct investments cause environmental degradation, the paper proposes formulation of appropriate regulatory mechanisms that are environmentally friendly. Additionally, India's new economic policies, favoring liberalization, privatization and globalization, reinforces the need to strengthen environmental regulations.Originality/valueIncorporation of economic freedom as measured by the “Size of Government” in the EKC model is unique. “Size of Government” deserves a special mention. The rationale for including this explanatory variable is to understand whether countries with lower government size are more polluting. After all, theory does suggest that goods and services, which have higher social cost vis-à-vis private cost, shall be overproduced in economies that adopt more market-friendly policies, necessitating government intervention. In the study, size of government is measured as per the definition and methodology adopted by Fraser Institute's Economic Freedom of the World Index.

scholarly journals Exploring the links between financial flows and economic growth: a panel ARDL approach

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Amna Zardoub
Keyword(s):  
Economic Growth ◽  
Foreign Direct Investment ◽  
Direct Investment ◽  
The Other ◽  
Short Term ◽  
Financial Flows ◽  
Content Type ◽  
Panel Ardl ◽  
Long Run ◽  
Short Run

Purpose Globalization occupies a central research activity and remains an increasingly controversial phenomenon in economics. This phenomenon corresponds to a subject that can be criticized through its impact on national economies. On the other hand, the world economy is evolving in a liberalized environment in which foreign direct investment plays a fundamental role in the economic development of each country. The advent of financial flows – foreign direct investment, remittances and official development assistance – can be a key factor in the development of the economy. The purpose of this study is to analyze the effect of financial flows on economic growth in developing countries. Empirically, different approaches have been used. As part of this study, an attempt was made to use a combined autoregressive distributed lag (ARDL) panel approach to study the short-term and long-run effects of financial flows on economic growth. The results indicate ambiguous effects. Economically, the effect of financial flows on economic growth depends on the investor’s expectations. Design/methodology/approach To study the short-run and long-run effects of financial flows on economic growth, this paper considers an empirical approach based on the panel ARDL. This model makes it possible to distinguish between the short-run effect and the long-run one. This type of model is based on three estimators, namely, mean group, pooled mean group (PMG) and dynamic fixed effect. Findings Results confirm the existence of a long-run relationship because the adjustment coefficient (error correction parameter) is negative and statistically significant. This paper finds that the PMG estimator is more consistent and more efficient. In the short-run, foreign direct investment do negatively affect economic growth, the effect is no significant in the long-run. On the other hand, the effect of remittances on economic growth is significant in the short-run. However, it is no significant in the long-run. Finally, the results suggest that the effect of official development assistance on economic growth is insignificant; both in the long-run and in the short-run. Originality/value To study the interaction between financial flows and economic growth, some empirical methodology are used such as the dynamic panel data and the autoregressive vector (VAR) model. In this study, we apply the panel ARDL model to analyze the short-run and the long-run effect for each financial flow on economic growth. The objective is to study the heterogeneity on dynamic adjustment in the short-term and long-term.

scholarly journals Dynamic Causal Relationships among GDP, Exports, and Foreign Direct Investment (FDI) in the Developing Countries

2013 ◽  
Vol 14 ◽  
pp. 1-19 ◽  
Author(s):  
Mohsen Mehrara ◽  
Amin Haghnejad ◽  
Jalal Dehnavi ◽  
Fereshteh Jandaghi Meybodi
Keyword(s):  
Economic Growth ◽  
Developing Countries ◽  
Foreign Direct Investment ◽  
Strong Evidence ◽  
Direct Investment ◽  
The Other ◽  
Fdi Inflows ◽  
Long Run ◽  
Short Run ◽  
Growth Hypothesis

Using panel techniques, this paper estimates the causality among economic growth, exports, and Foreign Direct Investment (FDI) inflows for developing countries over the period of 1980 to 2008. The study indicates that; firstly, there is strong evidence of bidirectional causality between economic growth and FDI inflows. Secondly, the exports-led growth hypothesis is supported by the finding of unidirectional causality running from exports to economic growth in both the short-run and the long-run. Thirdly, export is not Granger caused by economic growth and FDI inflow in either the short run or the long run. On the basis of the obtained results, it is recommended that outward-oriented strategies and policies of attracting FDI be pursued by developing countries to achieve higher rates of economic growth. On the other hand, the countries can increase FDI inflows by stimulating their economic growth.

scholarly journals ANALISIS PENGARUH REMITANSI, INVESTASI ASING LANGSUNG, IMPOR DAN PERTUMBUHAN EKONOMI DI INDONESIA

2020 ◽  
Vol 2 (4) ◽  
Author(s):  
Regina Septriani Putri ◽  
Ariusni Ariusni
Keyword(s):  
Economic Growth ◽  
Foreign Direct Investment ◽  
Direct Investment ◽  
Time Series Data ◽  
Positive Impact ◽  
Series Data ◽  
Long Run ◽  
Short Run ◽  
The Government ◽  
Positive Effect

Abstract : This study examined and analysis the effect of remittances, foreigndirect investment, imports, and economic growth in Indonesia in the long run andshort run. This study using Error Correction Model (ECM) method and using theannual time series data from 1989 to 2018. This study found that: (1) remittancehave an insignificant positive effect on economic growth in the long run and shortrun,(2)foreign direct investment have a significant positive impact on economicgrowth in the long run and short run, (3) import have an insignificant positiveimpact on economic growth both in the long run and short run. To increase theeconomic growth in the future, this study suggests the government to decresingimports of consume goods and increasing the inflow of capital goods, rawmaterial goods, remittances and foreign direct investment.Keyword : Remittance, Foreign Direct Investment, Import, Economic Growth andECM

scholarly journals TRADE OPENNESS AND ECONOMIC GROWTH: CASE OF MALAYSIA

2020 ◽  
Vol 2 (4) ◽  
pp. 42-47
Author(s):  
Khairunisah Kamsin ◽  
James Alin ◽  
Mori Kogid
Keyword(s):  
Economic Growth ◽  
Foreign Direct Investment ◽  
Direct Investment ◽  
Trade Openness ◽  
Capital Formation

This paper examines the role of foreign direct investment (FDI) and capital formation as mechanisms of trade openness for economic growth in Malaysia. This study found that foreign direct investment and capital formation are indicators of trade openness. Thus, this study proposes that policymakers should develop policies so that Malaysia could gain more benefits from trade openness and subsequently, accelerate the country’s economic growth.

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