scholarly journals Foreign direct investment as a factor of growth: The experience of European Union countries

2004 ◽  
Vol 56 (4) ◽  
pp. 409-446 ◽  
Author(s):  
Radovan Kovacevic
Keyword(s):  
Economic Growth ◽  
European Union ◽  
Human Capital ◽  
Foreign Direct Investment ◽  
Direct Investment ◽  
Empirical Literature ◽  
Domestic Saving ◽  
Foreign Investors ◽  
Fdi Inflows ◽  
New Eu Members

The empirical literature on the growth impact of foreign direct investment (FDI) suggests a strong positive relationship between the two. Yet, the lack of evidence of a clear causality from FDI to growth impedes our ability to firmly conclude that FDI inflows are a driver and not just a consequence of higher economic growth. Just as a higher return on investment typically attracts more fixed investment, it should be no surprise that it also attracts more foreign investors. Having said that, we need to acknowledge that the difficulty of finding unambiguous evidence of causality from FDI to growth does not refute the notion that such a relationship nevertheless exists. As the growth literature suggests, many different factors combine to create an environment conducive to higher economic growth. Proper policies and institutions have been found to be particularly important over longer periods of time. In this context, we need to view FDI from a broader perspective than its direct and immediate impact on growth itself. Could it not be the case, for example, that foreign investors are more demanding than indigenous firms as regards a stable and favourable policy environment, good infrastructure and an appropriate human capital stock? If governments introduce policies and create institutions with the purpose of attracting FDI, they may create an environment more generally favourable to growth even though some of this growth is not the result of FDI per se. The evidence is stronger that FDI has been boosting growth directly in Central and Eastern European countries (CEE) than in the 15 countries of the European Union (EU-15). The reason, as we have argued, is that while these countries needed to bridge the technology gap to the more advanced countries, they nevertheless met some key conditions - especially in terms of human capital - which helped them bridge this gap more quickly with the help of FDI. In addition, the sheer magnitude of net FDI inflows helped sustain a higher level of domestic investment than would have been possible on the basis of domestic saving and debt-creating capital inflows alone. While FDI is expected to continue to contribute to economic growth in the CEE countries that have joined the EU, it is less clear whether the economic gains from FDI will be as high as during the transition from plan to market. The more the new EU members come to resemble EU-15 countries in terms of inward FDI stocks as a share of GDP, productivity, efficiency and level of technology, the less likely it is that FDI will have a positive influence on economic growth beyond what is observed in more advanced market economies. That said, FDI and the associated activities of transnational corporations will undoubtedly remain an important welfare-enhancing force - both inside and outside an enlarged European Union.

scholarly journals What worth is a BIT? Impact of BITs on FDI Inflows into India

2018 ◽  
Vol 4 (02) ◽  
Author(s):  
Anshuman Kamila ◽  
Mitali Chinara
Keyword(s):  
Economic Growth ◽  
Developing Countries ◽  
Foreign Direct Investment ◽  
Direct Investment ◽  
Best Practice ◽  
Foreign Investors ◽  
Fdi Inflows ◽  
New Model ◽  
Indian Model Bit ◽  
The Government

Developing countries often consider foreign direct investment (FDI) as an engine to boost economic growth. Therefore they try to promote investment inflow by various means. One approach is to offer investment guarantees to foreign investors using Bilateral Investment Treaties (BITs). Following international best practice, India has signed a number of BITs to stimulate inflow of FDI. Till date, the Government of India has signed BITs with 83 countries. These BITs were largely negotiated on the basis of the Indian Model BIT of 1993. There have been recent moves that point in the direction of India fundamentally altering the text of its BITs with countries, including calling off existing BITs and approving a new model BIT. However, concerns have been raised as to the possible pernicious impact of these changes on the inflow of FDI into India. This paper investigates whether the concern is warranted at all – by asking if BITs significantly impact the inflow of FDI. It is established that BIT is indeed a veritable boost to FDI inflow, and the estimated coefficient remains significant and robust across econometric specifications. Therefore, a note of caution is sounded for the rejigging exercise involving BITs that has been initiated by India.

scholarly journals THE IMPACTS OF CORRUPTION ON ATTRACTING FOREIGN DIRECT INVESTMENT

2020 ◽  
Vol 4 ◽  
pp. 10-14
Author(s):  
Najibullah Zaki
Keyword(s):  
Economic Growth ◽  
Foreign Direct Investment ◽  
Direct Investment ◽  
Financial Resources ◽  
Foreign Investors ◽  
Fdi Inflows ◽  
Long Period ◽  
Different Types ◽  
Sustainable Economic Growth ◽  
Growth Economic

Investment is a macroeconomic variable and its well-known as the engine of economy that boosts economic growth, economic development and sustainable development. Investment plays an important role in the livelihood welfare of citizens. All economies require different types of investments particularly Foreign Direct Investment/ FDI in different sectors. Based on empirical researches, mostly FDI has positive impacts on the sustainable economic growth of the host economies. On one hand, FDI transfers technologies, skills, innovations, experiences, techniques and knowledge to the host economies. On the other hand, it provides host economies with stable financial resources for long period of time. Thus, it is the responsibility of governments to open their borders toward FDI inflows in order to attract this valuable financial resource. Despite the fact that countries require FDI but corruption is one of the main obstacles against it. Theoretically, there is a negative correlation between corruption and FDI inflows. In other words, corruption negatively impacts the FDI inflows and decreases FDI volume. Because, corruption increases costs and decreases benefits of FDI, corruption deteriorates the competitive trade environment; corruption discourages foreign investors through protecting domestic investors and corruption negatively effects the productivity of foreign investors. In practice, although most of the empirical researches showed that corruption negatively impacts the FDI flows. But some empirical researches also confirmed that there is a positive correlation between corruption and FDI flows. Hence, countries are responsible in fighting against corruption to attract more FDI and in return benefits their sustainable economic growth.

scholarly journals Impacts of Foreign Direct Investment on Economic Growth in the East African Community (EAC): Empirical Evidence from Burundi

2020 ◽  
Vol 3 (4) ◽  
Author(s):  
Eric Irakoze ◽  
Baorong YU
Keyword(s):  
Economic Growth ◽  
Human Capital ◽  
Foreign Direct Investment ◽  
Empirical Evidence ◽  
Direct Investment ◽  
Time Series Data ◽  
Series Data ◽  
Foreign Investors ◽  
East African Community ◽  
Short Run

This study analyzes how Foreign Direct Investment affects the rate of economic development among nations in the EAC with the empirical evidence of Burundi. The paper indicates that there is a link between foreign direct investment(FDI), gross domestic product(GDP), human capital, and openness with support of yearly time-series data from 1989 to 2017. The results from the Vector Error Correction Model (VECM) analysis technics discover that all the variables in long-term they move together. The findings also discovered that there is short-term causality running from GDP and human capital to FDI and no short-run causality found from openness to FDI as a result of Burundi’s policies that do not implement market seeker FDI. For VECM validation, the paper went through some post estimation diagnostic tests such as Lagrange multiplier tests and Jarque-Bera test, the results did not indicate any autocorrelation among the variables as the residuals were normally distributed. Openness being an important factor to attracting foreign investors, it is very crucial for Burundi to revise its trade policies and encourage a conducive environment that promotes foreign investment penetration by promoting and encouraging both domestic and foreign investors and keep improving human capital for more FDI attraction as a goal for Burundi economic growth.

THE EFFECTS OF FOREIGN DIRECT INVESTMENT ON THE HOST COUNTRY'S ECONOMIC GROWTH: THEORY AND EMPIRICAL EVIDENCE

2013 ◽  
Vol 58 (03) ◽  
pp. 1350017 ◽  
Author(s):  
ROSA FORTE ◽  
RUI MOURA
Keyword(s):  
Economic Growth ◽  
Human Capital ◽  
Foreign Direct Investment ◽  
Direct Investment ◽  
Empirical Literature ◽  
Growth Theory ◽  
Negative Effects ◽  
Host Countries ◽  
Positive Effects ◽  
Shed Light

Foreign direct investment (FDI) influences host country's economic growth through several channels. Empirically, a variety of studies considers that FDI generate economic growth but others conclude that FDI is a source of negative effects. By reviewing existing theoretical and empirical literature, we intend to shed light on the main explanations for the mixed results. The main conclusion is that the effects of FDI on economic growth depend on the domestic conditions of the host country (e.g., human capital, economic and technological conditions, degree of openness of its economy). Thus, the host countries governments have a key role in creating the conditions that allow for the leverage of the positive effects or for the reduction of the negative effects of FDI on the host country's economic growth.

Is the Ukrainian economy’s absorptive capacity appropriate to attract foreign direct investment and facilitate economic growth?

2018 ◽  
Vol 13 (6) ◽  
pp. 1928-1947
Author(s):  
Svitlana Shevelova ◽  
Svitlana Plaskon
Keyword(s):  
Higher Education ◽  
Economic Growth ◽  
Human Capital ◽  
Foreign Direct Investment ◽  
Production Function ◽  
Transition Economies ◽  
Absorptive Capacity ◽  
Direct Investment ◽  
Content Type ◽  
Douglas Production Function

Purpose Despite an increasing volume of literature focussed on foreign direct investment (FDI) in transition economies, there has been little research into FDI in Ukraine. The relationship between the inflows of FDI (IFDI) and absorptive capacity (AC) has been under-researched in the peripheral transition countries like Ukraine. The purpose of this paper is to analyse the appropriateness of the Ukrainian economy’s AC to attract IFDI and facilitate economic growth with a particular focus on AC factors, such as the potential of human resources to absorb innovation and benefit from research and development (R&D) expenditure. Design/methodology/approach This study presents a thoughtful research design: there is an analysis of the AC framework for justification and selection factors that allows a measurement of the potential of Ukraine’s AC to attract and exploit IFDI. The study uses data from 25 regions in Ukraine for the 1996–2015 period. To estimate the effects of IFDI on Ukrainian economic growth, a Cobb–Douglas production function is used. As an appropriate instrumentation technique for dynamic panel data, the Generalised Method of Moments is used to provide unbiased and efficient estimates of the results. The application of the interactive term in this study allows the authors to indicate the existence of complementarities between IFDI and human capital, in particular with higher education, that afford opportunity to absorb new technologies and benefit from IFDI. Findings The resulting model indicates that R&D expenditure benefited very significantly in evolving country’s innovation system due to economic growth. Physical and human capital has not been used effectively in Ukraine to facilitate economic growth and attract IFDI. The number of patents is not significant in all of the regression models. Moreover, IFDI in Ukraine for the 1996–2015 period did not significantly impact on economic growth. However, the AC of human capital, in particular those with a higher education, is relatively relevant to benefit from IFDI. Practical implications The findings have important implications for governmental policy, which should be based on improving the business climate, a strategy for digital development, innovation, migration, institutional and regional policies aimed at the achievement of country’s sustainable economic growth. The government should increase R&D expenditure as an important factor of gross domestic product growth and introduce grants, loans and other financial supports for encouraging students to continue university education. Originality/value The originality and value of this paper is empirical and methodological. The empirical results of this study enable a conclusion about the appropriate level of the country’s absorptive capability required to benefit from IFDI. The paper also contributes to the existing academic debate and proves that despite the well-established theoretical framework for the IFDI–AC economic impact context, a new theorisation is needed to explore the full complexity of the country’s explicit relationship between AC and IFDI. Future research should be focussed on examining not only groups of countries but also distinctly the country’s explicit relationship between AC and IFDI with the particular attention for the under-researched countries: the peripheral transition economies to discover new research niches for theory building. This study presents an original methodological approach with a careful justification of the theoretical framework for hypothesis development, an appropriate sample and an original application of seminal research methods based on the Cobb–Douglas production function. This study proves that the interactive term, which allows indication of the existence of complementarities between IFDI and other variables, is appropriate for measuring AC in countries with smaller amounts of IFDI.

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 Agricultural Sector FDI and Economic Growth in Saarc Countries

2019 ◽  
Vol 8 (2S10) ◽  
pp. 116-121
Keyword(s):  
Economic Growth ◽  
Foreign Direct Investment ◽  
Direct Investment ◽  
Agricultural Sector ◽  
South Asians ◽  
Secondary Data ◽  
Agricultural Products ◽  
Fdi Inflows ◽  
Important Relationship ◽  
The Relationship

The study seeks to establish the relationship between foreign direct investment to Saarc region agricultural sector and economic growth with secondary data. SAARC comprises 3% of the world's area, 21% of the world's population and 3.8% (US$2.9 trillion) making up a total of 3% of the world’s area. The country has second in all over the world in terms of agriculture position. The population obliquely all of the member states is over 1.7 billion, accounting for 21% of the world’s total population. In their 42% of the agricultural operation in SAARC nations and also 51% source of livelihood of the South Asians. The study has revealed that India alone accounts for 52 per cent of the agricultural products using the SAARC region peoples. For the present study, a total of 34 groups related to the agricultural products were selected out of the total groups. The techniques employed to analyze the data include descriptive statistic, correlation and linear forecast method. The study also revealed a positive and important relationship between economic growth and foreign direct investment flow to the agricultural sector. Thus, the study recommends that policy should focus on flexible trade policies to attract more foreign direct investment (FDI) inflows to SAARC nations. i.e. Afghanistan, Bangladesh, Bhutan, Maldives, Nepal, Pakistan, Sri Lanka including India

scholarly journals Determinant of FDI Inflows in OIC Countries

2021 ◽  
Vol 4 (1) ◽  
Author(s):  
Tania Megasari ◽  
Samsubar Saleh
Keyword(s):  
Economic Growth ◽  
Foreign Direct Investment ◽  
Exchange Rates ◽  
Direct Investment ◽  
Trade Openness ◽  
Political Stability ◽  
Fixed Effect Model ◽  
Fdi Inflows ◽  
Macroeconomic Variables ◽  
Effect Model

This study aims to analyze the determinants of foreign direct investment (FDI) in the Organization of Islamic Cooperation (OIC) country members for the period 2005 to 2018 The determinant variables of FDI are corruption, political stability and macroeconomic variables such as inflation, exchange rates, economic growth, and trade openness. Analysis used in the study  is the fixed effect model (FEM) of the OIC data panel.The results showed that economic growth and trade openness had a significant influence on foreign direct investment (FDI), while the effects of corruption, political stability, inflation and the exchange rate have no significant effect on foreign direct investment (FDI).

Sign in / Sign up

Export Citation Format

Share Document