A long-run and short-run analysis of the macroeconomic interrelationships in Vietnam

Purpose The purpose of this paper is to analyse the impact of foreign direct investment (FDI) on urban-rural income inequality in China. Design/methodology/approach This study uses the provincial-level panel data and employs the fixed-effects instrumental variable regression technique to investigate empirically the impact of FDI on urban-rural income inequality in China. Findings The study finds that while FDI has directly contributed to reducing urban-rural income inequality through employment creation, knowledge spillovers and contribution to economic growth, FDI has also contributed to increasing urban-rural income inequality through international trade. Practical implications The study has some policy implications. First, as the study finds that FDI not only contributes to reducing urban-rural income inequality through employment creation, knowledge spillovers and contribution to economic growth, but also contributes to increasing urban-rural income inequality through international trade, therefore, apart from improving local economic and technological conditions to attract more FDI inflows, China should re-design FDI policies by shifting away from encouraging export-oriented FDI to encouraging FDI flows into the industries and sectors in line with China’s overall economic structural adjustments and industrial upgrading. Second, policies should focus on increasing investment in infrastructure development and in public education, which not only can reduce urban-rural income inequality but also can attract more FDI inflows. And finally policies should be designed to accelerate urbanisation development by focusing on urban-rural integrated development, household registration system reform and proper settlement of rural migrants in urban areas, thus reducing urban-rural income inequality. Originality/value The paper makes two major contributions to the literature. First, the paper adopts the fixed-effects instrumental variable regression technique to deal with the endogeneity issues in estimating the impact of FDI on urban-rural income inequality, producing more consistent estimates. Second, the paper investigates not only the direct impact of FDI on urban-rural income inequality through the effects of employment creation, knowledge spillovers and contribution to economic growth, but also the indirect impact of FDI on urban-rural income inequality through its activities in international trade, adding new empirical evidence to the sparse literature on the impact of FDI on income inequality in China.

The present paper highlights the impact of Foreign Direct investments (FDI) and Foreign Institutional Investments (FIIs) in India on BSE and NSE. The study is purely based on secondary data and the analysis of which was made through the application of Karl Pearson's coefficient of Correlation and Multi Regression OLS model (Ordinary Least Square). Based on 15 years data starting from 2001 to 2015, it was found that the flow of FDI and FIIs was moving in cycle with Sensex and Nifty.There is a very strong positive correlation between FDI and Sensex and FDI andNifty. There is a moderate positive correlation between FII and Sensex but the correlation is not significant between FII andNifty.It can be concluded that the impact of flow of FDI and FIIs on Indian stock market is significant.

Foreign Direct Investment (FDI) is widely regarded as a critical driver of economic development, particularly in low- and middle-income countries. It provides not only capital but also facilitates technology transfer, creates employment opportunities, and connects local economies to global value chains. This paper examines the impact of Foreign Direct Investment (FDI) on the export performance of Bangladesh's garments industry, the country's most significant export sector. Over the past three decades, Bangladesh has transformed into the world’s second-largest exporter of ready-made garments (RMG), with exports exceeding USD 25 billion annually. Despite various structural and institutional challenges, the sector has managed to attract consistent foreign investment, largely due to low labour costs, strategic trade policies, and government incentives such as tax holidays and the establishment of Export Processing Zones (EPZs). Using annual data from 1996 to 2015, this paper investigates how FDI influences garments export earnings, controlling for other key macroeconomic factors such as labour force size, exchange rate, interest rate, inflation rate, GDP growth, and the number of operating garments firms. Inflation contributes positively (~0.3% increase in export for each 1% inflation increase). Interest rate shows a 0.6% positive impact but remains statistically insignificant, suggesting its role may be indirect or mediated by other variables. Multiple regression models, including Ordinary Least Squares (OLS) and log-linear transformations, are employed to estimate the elasticity and strength of relationships between variables. The results indicate that FDI has a statistically significant and positive effect on garment export earnings. A 1% increase in FDI is associated with an approximate 1% increase in export earnings, suggesting a strong elasticity between the two. Inflation and interest rate also exhibit significant influence, though their effects are comparatively smaller. The model's high adjusted R² value (above 0.93) reflects the robustness of the findings. This paper contributes to the literature on international investment and trade by offering sector-specific evidence from a least-developed economy. The findings highlight the strategic role of FDI in supporting export-led growth and industrialisation. Policy recommendations are made to further enhance FDI inflows and support the sustainability of the garments sector as a driver of inclusive economic development. The findings of this study underscore the pivotal role of Foreign Direct Investment (FDI) in enhancing the export performance of Bangladesh’s garments industry.

Reviewing Impacts of Foreign Direct Investments on the Macroeconomic Performance of Developing Countries

Introduction. Export and foreign direct investment have great significance for economic development of the developing and transition countries, like Armenia and the Commonwealth of Independent States countries. As the domestic market of the Republic of Armenia is small, Armenia’s economic development depends on external demand. The aim of this article is to estimate the impact of foreign direct investment and export on gross domestic product of the Commonwealth of Independent States countries and the Republic of Armenia. Materials and Methods. For the Commonwealth of Independent States countries, regression analysis with panel data was performed using Stata V10 statistical package. For Armenia, correlation and regression analysis was performed, the results of the Granger causality test were revealed. The regression analysis employed the least squares method. Results. The performed analysis has shown that in the Commonwealth of Independent States countries the export growth of 1 % causes the gross domestic product growth of 0.92 % and the increase in foreign direct investment of 1 % causes the gross domestic product growth of 0.4 %. In the Republic of Armenia, the export growth of 1 unit causes the gross domestic product growth of 8.89 units and the increase in foreign direct investment of 1 unit causes the gross domestic product growth of 1.23 units. Discussion and Conclusion. Comparison of the obtained results with those of the similar analysis conducted earlier by the author makes it possible to state that in the Commonwealth of Independent States countries the impact of export has decreased while the impact of foreign direct investment has increased. In Armenia, the impact of both export and foreign direct investment is higher than before. The materials of this article may be useful for other researcher studying this issue, as well as for the governments of the Commonwealth of Independent States countries and the Republic of Armenia responsible for the development of the economic policy.

Nearly all developing countries actively seek capital and technology from the advanced countries. Although private direct foreign investment (mainly in the form of multinational enterprise) is viewed with ambivalence by many developing countries, it is nonetheless true that direct investment remains a substantial source of capital and is sometimes the only source of specific technologies. Indeed, given the slow growth in official external assistance, developing countries are becoming more, not less, dependent on direct foreign investment. While disbursements of official development assistance by the OECD countries rose 43% from 1961 through 1970, direct investment flows rose almost 90% over the same period. In the later year, the flow of direct investment was more than two-fifths of all official assistance, $3.2 billion compared to $7.8 billion.1 Furthermore, the United States and other major capital exporting countries would prefer, for economic as well as ideological reasons, to channel more of their capital outflows to developing countries through private investment. It is highly probable, therefore, that developing countries will continue to rely on direct foreign investment in the foreseeable future to carry out their development programs. It is against this background that the present study seeks to identify the empirical determinants of direct foreign-investment flows in the manufacturing sectors of developing countries. Our purpose is to select from the many economic, social, and political features of a developing country those features that are critical to making that country attractive or unattractive to private foreign investors. Available empirical studies are limited

Foreign Investment in Developing Countries. Edited by H. S. Kehal. Hampshire and New York: Palgrave Macmillan, 2004. Pp. 261. This book is an edited volume consisting of twelve diverse chapters that focuses on the theoretical, empirical, and policy issues of attracting foreign direct investment (FDI) in developing countries. While the first two chapters focus more on the theoretical aspects of FDI and its determinants, the remaining chapters are more empirical in focus and constitute country studies on the determinants of FDI or the impact of FDI on their economies. Some of these studies focus on the experience of the ASEAN countries. Among the empirical studies, Chapters 3 and 4 focus on China, which attracted the largest share of world FDI among the developing countries. These two chapters address two very interesting questions: (1) the impact of inward FDI on the Chinese economy and its determinants; and (2) how to maximize benefits from FDI and minimize the risks associated with it, and the lessons that can be learnt from China's experience. The analysis holds important implications for other developing countries that are too much FDI-dependent for their growth prospects and need to strike a balance between technology transfers and domestic market protection. The next two chapters involve studies on the Indian economy, which is emerging as a favourable investment destination, after a decade of economic reforms that has integrated it further with the global economy. Chapter 5 does not specifically focus on FDI but analyses the ways to enhance foreign investment flows in a broader sense. Chapter 6 specifically deals with FDI and the resource gap in India. It argues that FDI has not played a significant role in enhancing the profitability and efficiency of Indian firms even after a decade, and identifies the important constraints that deter the flows of FDI into India, including the policy environment for investment. This chapter comes out with a very interesting fact that after liberalization of the economy, Indian FDI and non-FDI companies seem to be competing against each other via larger advertisement expenditure than R&D expenditure or selling commission, indicating that unlike China, most of the FDI in India appears to be market oriented, with little focus on R&D. Chapters 7 and 8 then undertake empirical studies on ASEAN economies, viz. Indonesia and Malaysia, with the former specifically focusing on bilateral FDI flows from the EU. These two chapters undertake an econometric exercise of the determinants of FDI flows in each of them, and observe that while these countries have been generally successful in attracting FDI for their growth prospects, they face increasing competition from other developing countries, and need to undertake important policy changes to continue to be competitive in attracting global FDI. Chapter 9 by Sadhana Srivastava and Ramkishen S. Rajan, by far the longest and one of the most interesting chapters of this book, makes an important contribution to the policy discussion on the impact of China's economic rise on trade and FDI flows in ASEAN and India. …

This paper investigates the impact of foreign direct investment (FDI), trade openness, inflation rate on the manufacturing exports performance of Tanzania over the period of 1980–2012 using the Ordinary Least Square (OLS) method and Vector Error Correction (VEC) model under the time series framework. The Augmented Dickey Fuller (ADF) and Philip-Perron (PP) tests were employed to test for the stationarity of the variables while the Johansen test was employed to test for co-integration relationship between variables, followed by the VEC regression model. The empirical results trace a long-run equilibrium relationship in the variables. The results of unit root suggested that both variables in the model were stationary after first difference. The results from regression analysis revealed that FDI inflows and trade openness have positive impact on manufacturing exports performance of Tanzania while inflation rate negatively affect manufacturing export performance. Since, FDI, Trade oppennes, and inflation rate were found to be important factors in explaining the changes in manufacturing exports both in the short run and long-run, the study concludes that Tanzania should formulate FDI and trade oppenness-led polices and reduce inflation rate to enhance its manufacturing exports performance.

Vietnam is an emerging economy which also is one of the most successful countries in attracting foreign direct investment over decades. Some studies have shown that foreign direct investment playing an important role in supporting economic growth in Vietnam. However, there have not got clear evidence about the effect of the foreign direct investment on private investment in this economy. Our paper tries to investigate the impact of foreign direct investment on private investment in Vietnam by the Error correction model. The quarterly dataset is collected in the period of 2003-2017. The estimated results show that foreign direct investment, as well as the GDP per capita, have positive impacts on private investment in both the short and long run. So the crowds-in hypothesis is confirmed in the case of the Vietnamese economy. On the other hand, we see that inflation can harm private investment and its impact level in long run is smaller than the short run. Finally, the export balance has a negative effect on private investment, however, the coefficients are not enough statistical significance implying that international trade maybe did not help to support the private investment because of the trade deficit prolong during the period.

<p><em>Whether Foreign Direct Investment (FDI) is beneficial to host country growth or not, it is a question debated since a long time (Acaravci & Ozturk, 2012). This paper will examine the flow of FDI and their impact on economic growth in the Republic of Kosovo. This correlation between FDI and economic growth will be studied through regression (Quantile Regression Median). The results of the study will be obtained using multiple regression to evaluate the effect of FDI on the economy, using secondary annual data from 2007 to 2017. In addition to the basic model to be used to assess the impact of FDI on total growth amount, we have also decomposed them into the second model: FDI in manufacturing and FDI in services as well as other FDI. The research results show that the impact of total FDI and FDI in manufacturing is negative and insignificant while the impact of FDI in services and other FDI is positive but insignificant to economic growth in Kosovo. Due to the importance of FDI, as an important source of capital in a transition country such as Kosovo, these results are informational for decision-makers to improve policies in order for the country to become more attractive in attracting FDI. </em></p>

I. Introduction Foreign direct investment (FDI) has long been exercised by multinational enterprises (MNEs) from industrialized countries. However, during the 1980s and 1990s some developing countries, especially the newly industrialized economies (NIEs) in East Asia, rapidly emerged as one of the major sources of world FDI flows (Suh and Seo 1997; UNCTAD 1995; Petri 1995). During this same period, annual flows of Korean outward FDI increased at an unprecedented pace. For example, Korea's total approved outward FDI, in nominal terms, increased by about 24-fold between 1985 and 2003: from US$219 million in 1985 to US$5,437 million in 2003. Manufacturing was the leading sector, representing almost 53 per cent of the total outward Korean FDI during this period. The trading sector was the next largest sector, with 24 per cent of the total amount (Korea Export-Import Bank 2003). In terms of factor intensity, labour-intensive manufacturing industries mostly relocated to developing countries, particularly ASEAN countries and China, while most Korean FDI conducted in industrialized countries was capital-intensive manufacturing (Tcha 1998). Such a rapid increase in outward FDI has raised some concern among policy-makers and researchers, primarily about the impact of outward FDI on the domestic economy, and potential welfare implications. (1) One major impact of outward FDI is the trade effect, particularly on the exports of a home country. As for the relationship between FDI and trade, theoretical arguments have been made that the two complement or substitute each other. Earlier theoretical efforts, like Mundell (1957), highlight the trade-substituting nature of FDI, and more recent efforts tend to favour FDI being trade-complementing (Markusen 1983, 1984; Helpman 1984, 1985; Helpman and Krugman 1985; Kojima, 1978, 1991 among others). As Petri (1995) and Pfaffermayr (1996) argue, however, the relationship is not predictable because the trade impact of FDI can be influenced by a range of factors, such as firm strategies, motivations for FDI, and government policies. Therefore, the relationship between FDI and trade remains a subject requiting empirical investigation. There is a mixture of results from empirical studies of FDI on home country exports. Some, like Mundell (1957) and Svensson (1996), found FDI had a negative effect on home country exports. Others found outward FDI had a positive effect on exports: Lipsey and Weiss (1981), Helpman (1984), Grossman and Helpman (1989), Lin (1995), Pfaffermayr (1996), Lim and Moon (2001), KOTRA (1997), Hejazi and Safarian (2001). More recently, Lewer and Terry (2003) demonstrate in their evaluation of the impact on trade stemming from capital account liberalization, that foreign capital in general--and FDI--have strong trade creating effects. In this paper, we study the trade impact of Korean outward FDI in four major ASEAN countries. Lim and Moon (2001) have shown the trade impact of FDI using Korean firm-level information. However, their study tends to show foreign affiliates' inclination to export back to the home country, as do other firm-level studies, rather than the trade-creating or displacing effects of FDI. This arises because they did not control for other trade-affecting factors, such as income and prices. Furthermore, firm-level studies ignore the possibility that foreign affiliates in a host country may drive out local firms in an export-oriented industry. In this case, a foreign affiliate's exports may not necessarily be complementing a home country's exports. Therefore, other trade-related variables need to be appropriately controlled in this type of analysis. In the next section, we discuss the theoretical background as to how FDI and trade are potentially related. In section III, a simple econometric model is constructed to empirically investigate the relationship between FDI and trade. The model is set to consider the impact of outward FDI on exports and imports separately, while taking into account country-specific fixed effects. …

In the past years, Ghana has witnessed a significant increase in Foreign Direct Investment which is expected to translate into transformative growth that reduces poverty and inequality; however, the country’s poverty and income inequality profile remain high. Foreign direct investment (FDI) and poverty research are important because FDI can have both positive and negative effects on poverty levels in host countries [1]. The positives imply that FDI can bring in capital, technology, and job opportunities, which can help reduce poverty by boosting economic growth and raising people's living standards. On the other hand, FDI can displace local businesses, exacerbate income inequality, and have environmental consequences that harm the poorest members of society. Understanding the relationship between FDI and poverty can assist policymakers and businesses in making informed decisions that promote inclusive and sustainable economic growth and reduce poverty. This study investigates the impact of FDI on poverty in Ghana using a 29-year data set from (1990 to 2018). Analysis was done using the Johansen Cointegration technique. The literature informed the variables used for this study. The Gini coefficient (which serves as a proxy for poverty and its parts of the FGT poverty indices family), foreign direct investment (FDI), GDP per Capita, exchange rate, trade openness, and inflation rate were all cointegrated. The results of the study showed that FDI, GDP per capita, inflation rate, and exchange rate widen the income inequality gap, hence, increasing the poverty incidence. In contrast, an increase in trade openness reduces the Gini coefficient implying a reduction in income inequality and poverty.

Modeling Effects of Foreign Direct Investment on Macroeconomic Variables in Sudan

In recent years, foreign direct investment (FDI) has played an important role in Bac Ninh’s economic restructuring. Of all provinces, Bac Ninh has always been leading the way for attracting foreign investment in Vietnam. The goal of this article is to study the relationship between FDI and the structure of economy of Bac Ninh. We use Ordinary Least Squares regression (OLS) to analyze the influence of the province’s FDI on its economic restructuring over the period from 2009 to 2019. The result partly shows that the FDI has had a strong impact on Bac Ninh’s economic restructuring in both speed and quality. Through these findings, we propose several recommendations for the local authorities to continue to attract the FDI and reinforce the positive impacts of the FDI on the province’s economic restructuring in the future. Keywords : Bac Ninh, foreign direct investment (FDI), economic restructuring, OLS DOI: 10.7176/EJBM/12-15-03 Publication date: May 31 st 2020

This research investigates the impact of foreign direct investment (FDI), government expenditure (GOE), and inflation rate (IFR) on the unemployment rate (UPR) in Nigeria from 1985 to 2021 through Autoregressive Distributed Lag (ARDL) modeling approach. An initial assessment to test the significance of signals between each independent variable and UPR was performed using rolling correlation analysis. Subsequently, the bounds test methodology to examine cointegration among between the FDI, GOE, IFR, and UPR was performed. Additionally, the causal relationship between these economic variables was performed through the Error Correction Model (ECM) approach. The estimated ARDL model parameters stability was determined using the cumulative sum (CUSUM) of squares chart. The Augmented Dickey Fuller unit root test suggests that the variables are stationary at first differences (I(1)). The bounds test revealed that the variables are cointegrated at 1%, 5%, and 10% indicating a long run relationship between UPR and FDI, GOE, and IFR. The ARDL results indicates that at 5%, a unit increase in FDI at lag one have a long run significant decreasing impact on UPR by 19.96%. But in the short run, the FDI at lag one has a significant increasing effect on UPR by 7.23%. However, the CUSUM of square chart shows unstable parameter estimation based on the Akaike Information Criteria selected model, ARDL (1, 3, 0, 0). The study concludes that UPR is being influenced by FDI in reducing UPR in the long run. Recommendation based on the findings is that FDI should be considered most important when policies are drafted for tackling the issue bordering UPR in Nigeria.