Economic growth, foreign direct investment and governance oscillation: Empirical evidence from SAARC economies (1996-2015)
Abstract. Foreign direct investment (FDI) considered as one of the conventional determinant of Economic growth. Economies that are pursuing for better tomorrow must focus on attracting foreign direct Investments. FDI depends on a number of factors in a country such as market size, level of openness, natural resources, labor cost and productivity, economic growth rate, macroeconomic stability, technology level and so on. Beside these factors, Governance in the recipient economy is also an important pre-determinant of FDI. This study seeks to investigate the impact of FDI (inflows) on Economic growth via Governance through empirical evidence from SAARC economies by using Panel data technique. The data is cross-sectional time series for the period 1996-2015. GDP per capita growth has been used as a variable to assess Economic growth; foreign direct Investment (inflows) and governance data has obtained from World Bank, World Development Indicators. The results indicate that governance does not exert their impact on FDI (inflows) and fails to act as a mediating factor of FDI (inflows) in case of SAARC economies However the SAARC economies should focus on improving level of institutions for catalyzing domestic financial markets.
Keywords. Foreign Direct investment (inflows), Governance, Economic Growth, Human Capital, Gross Capital Formation.
Ahmad, E., Ullah, M.A., & Arfeen, M.I. (2012). Does corruption affect economic growth? Latin American Journal of Economics, 49(2), 277-305.
Ahmad, M.H., & Ahmed, Q.M. (2014). Does the institutional quality matter to attract the foreign direct investment? An Empirical Investigation for Pakistan. South Asia Economic Journal, 15(1), 55–70. doi. 10.1177/1391561414525708
Ahmad, M.H., Alam, S., Butt, M.S., & Haroon, Y. (2003). Foreign direct investment, exports, and domestic output in Pakistan, The Pakistan Development Review, 42(4), 715-723.
Aidt, T.S. (2009). Corruption, institutions, and economic development. Oxford Review of Economic Policy, 25(2), 271-291. doi. 10.1093/oxrep/grp012
Alfaro, L., Chanda, A., Kalemli-Ozcan, S., & Sayek, S. (2004). FDI and economic growth: the role of local financial markets. Journal of International Economics, 64(1), 89–112. doi. 10.1016/S0022-1996(03)00081-3
Al-Sadig, A. (2009). The effects of corruption on FDI inflows. Cato Journal, 29(2), 267.
Annual Report, (2013). [Retrieved from]. 9 December 2017.
Anwar, S., & Nguyen, L.P. (2010). Foreign direct investment and economic growth in Vietnam. Asia Pacific Business Review, 16(1-2), 183-202. doi. 10.1080/10438590802511031
Asiedu, E. (2002). On the determinants of foreign direct investment to developing countries: is Africa different? World Development, 30(1), 107-119. doi. 10.1016/S0305-750X(01)00100-0
Asiedu, E., & Freeman, J. (2009). The effect of corruption on investment growth: Evidence from firms in Latin America, Sub-Saharan Africa, and transition countries. Review of Development Economics, 13(2), 200-214. doi. 10.1111/j.1467-9361.2009.00507.x
Azman-Saini, W.N.W., Baharumshah, A.Z., & Law, S.H. (2010). Foreign direct investment, economic freedom and economic growth: International evidence. Economic Modelling, 27(5), 1079-1089. doi. 10.1016/j.econmod.2010.04.001
Balasubramanyam, V.N., Salisu, M., & Sapsford, D. (1999). Foreign direct investment as an engine of growth. Journal of International Trade & Economic Development, 8(1), 27-40. doi. 10.1080/09638199900000003
Bardhan, P. (1997). Corruption and development: A review of issues. Journal of Economic Literature, 35(3), 1320-1346.
Basu, P., Chakraborty, C., & Reagle, D. (2003). Liberalization, FDI, and growth in developing countries: A panel cointegration approach. Economic Inquiry, 41(3), 510–516. doi. 10.1093/ei/cbg024
Brambor, T., Clark, W.R., & Golder, M. (2006). Understanding Interaction Models: Improving Empirical Analyses. Political Analysis, 14(1), 63-82. doi. 10.1093/pan/mpi014
Braumoeller, B.F. (2004). Hypothesis testing and multiplicative interaction terms. International Organization, 58(4), 807-820. doi. 10.1017/S0020818304040251
Brunetti, A., & Weder, B. (1998). Investment and institutional uncertainty: a comparative study of different uncertainty measures. Review of World Economics, 134(3), 513–533. doi. 10.1007/BF02707928
Campos, J.E., Lien, D., & Pradhan, S. (1999). The impact of corruption on investment: Predictability matters. World Development, 27(6), 1059-1067. doi. 10.1016/S0305-750X(99)00040-6
Chakraborty, C., & Basu, P. (2002). Foreign direct investment and growth in India: a cointegration approach. Applied Economics, 34(9), 1061-1073. doi. 10.1080/00036840110074079
Chan, M.L., Hou, K., Li, X., & Mountain, D.C. (2014). Foreign direct investment and its determinants: A regional panel causality analysis. The Quarterly Review of Economics and Finance, 54(4), 579–589. doi. 10.1016/j.qref.2013.07.004
Choe, J.I. (2003). Do foreign direct investment and gross domestic investment promote economic growth? Review of Development Economics, 7(1), 44-57. doi. 10.1111/1467-9361.00174
De Mello, L.R. (1997). Foreign direct investment in developing countries and growth: A selective survey. Journal of Development Studies, 34(1), 1-34. 10.1080/00220389708422501
De Mello, L.R. (1999). Foreign direct investment-led growth: evidence from time series and panel data. Oxford Economic Papers, 51(1), 133-151. doi. 10.1093/oep/51.1.133
Dunning, J.H. (1994). Reevaluating the benefits of foreign direct investment. University of Reading, Department of Economics.
Gastanaga, V.M., Nugent, J.B., & Pashamova, B. (1998). Host country reforms and FDI inflows: How much difference do they make? World Development, 26(7), 1299-1314. doi. 10.1016/S0305-750X(98)00049-7
Globerman, S., & Shapiro, D.M. (1999). The impact of government policies on foreign direct investment: The Canadian experience. Journal of International Business Studies, 30(3), 513-532. doi. 10.1057/palgrave.jibs.8490081
Gui-Diby, S. L. (2014). Impact of foreign direct investments on economic growth in Africa: Evidence from three decades of panel data analyses. Research in Economics, 68(3), 248-256. doi. 10.1016/j.rie.2014.04.003
Gujarati, D.N. (2009). Basic Econometrics. Tata McGraw-Hill Education.
Habib, M., & Zurawicki, L. (2002). Corruption and foreign direct investment. Journal of International Business Studies, 33(2), 291-307. doi. 10.1057/palgrave.jibs.8491017
Hansen, H., & Rand, J. (2005). On the causal links between FDI and growth in developing countries. Helsinki: UNU WIDER. [Retrieved from].
Harms, P., & Ursprung, H. W. (2002). Do civil and political repression really boost foreign direct investments? Economic Inquiry, 40(4), 651-663. doi. 10.1093/ei/40.4.651
Hsiao, F.S., & Hsiao, M.-C.W. (2006). FDI, exports, and GDP in East and Southeast Asia: Panel data versus time-series causality analyses. Journal of Asian Economics, 17(6), 1082-1106. doi. 10.1016/j.asieco.2006.09.011
IBN Investment Guide Book Final, (n.d.). [Retrieved from]. 9 December 2017.
Investment Guide, (n.d.). [Retrieved from]. 9 December 2017.
Khordagui, N.H., & Saleh, G. (2013). FDI and absorptive capacity in emerging economies. Topics in Middle Eastern and North African Economies, 15. [Retrieved from].
Kinoshita, Y., & Campos, N.F. (2003). Why does FDI go where it goes? New evidence from the transition economies, IMF Working Paper, No.WP/03/228. [Retrieved from].
Kose, M.A., Prasad, E.S., & Terrones, M.E. (2009). Does openness to international financial flows raise productivity growth? Journal of International Money and Finance, 28(4), 554-580. doi. 10.1016/j.jimonfin.2009.01.005
Liu, X., Burridge, P., & Sinclair, P.J. (2002). Relationships between economic growth, foreign direct investment and trade: evidence from China. Applied Economics, 34(11), 1433-1440. doi. 10.1080/00036840110100835
Masron, T.A., & Nor, E. (2013). FDI in ASEAN-8: Does institutional quality matter? Applied Economics Letters, 20(2), 186-189. doi. 10.1080/13504851.2012.687090
Mauro, P. (1995). Corruption and growth. The Quarterly Journal of Economics, 110(3), 681-712. doi. 10.2307/2946696
Méon, P.-G., & Sekkat, K. (2004). Does the quality of institutions limit the MENA’s integration in the world economy? The World Economy, 27(9), 1475-1498. doi. 10.1111/j.0378-5920.2004.00661.x
Méon, P.-G., & Sekkat, K. (2005). Does corruption grease or sand the wheels of growth? Public Choice, 122(1), 69-97. doi. 10.1007/s11127-005-3988-0
Nair-Reichert, U., & Weinhold, D. (2001). Causality tests for cross-country panels: A new look at FDI and economic growth in developing countries. Oxford Bulletin of Economics and Statistics, 63(2), 153-171. doi. 10.1111/1468-0084.00214
Neumayer, E., & Spess, L. (2005). Do bilateral investment treaties increase foreign direct investment to developing countries? World Development, 33(10), 1567-1585. doi. 10.1016/j.worlddev.2005.07.001
North, D.C. (1990). Institutions, institutional change and economic performance. Cambridge University Press.
Quazi, R., Vemuri, V., & Soliman, M. (2014). Impact of corruption on foreign direct investment in Africa. International Business Research, 7(4), 1-10. doi. 10.5539/ibr.v7n4p1
Ray, S. (2012). Impact of foreign direct investment on economic growth in India: A cointegration analysis. Advances in Information Technology and Management, 2(1), 187–201.
Shao, J., Ivanov, P.C., Podobnik, B., & Stanley, H.E. (2007). Quantitative relations between corruption and economic factors. The European Physical Journal B-Condensed Matter and Complex Systems, 56(2), 157-166. doi. 10.1140/epjb/e2007-00098-2
Shleifer, A., & Vishny, R.W. (1993). Corruption. The Quarterly Journal of Economics, 108(3), 599-617. doi. 10.2307/2118402
Stein, E., & Daude, C. (2001). Institutions, integration and the location of foreign direct investment. New Horizons for Foreign Direct Investment, 101-128. [Retrieved from].
Sun, H., & Parikh, A. (2001). Exports, inward foreign direct investment (FDI) and regional economic growth in China. Regional Studies, 35(3), 187–196.
UNCTAD, (2014). Investing in the SDGs: an action plan. New York: United Nations.
UNCTAD, (2016). Investor nationality: policy challenges. New York Geneva: United Nations.
Wheeler, D., & Mody, A. (1992). International investment location decisions: The case of US firms. Journal of International Economics, 33(1–2), 57-76. doi. 10.1016/0022-1996(92)90050-T
World Bank, (2011). Doing Business 2012: Doing Business in a More Transparent World. The World Bank. doi. 10.1596/978-0-8213-8833-4
World Bank. (2016). Doing Business 2017: Equal Opportunity for All. The World Bank. doi. 10.1596/978-1-4648-0948-4
Yao, S. (2006). On economic growth, FDI and exports in China. Applied Economics, 38(3), 339-351. doi. 10.1080/00036840500368730Zhang, K.H. (2001). Does foreign direct investment promote economic growth? Evidence from East Asia and Latin America. Contemporary Economic Policy, 19(2), 175-185. doi. 10.1111/j.1465-7287.2001.tb00059.x
- There are currently no refbacks.
Journal of Economics Library - J. Econ. Lib. - JEL - www.kspjournals.org
Copyright © KSP Library