Do FDI And Trade Openness Affect Economic Growth Differently Across Income Groups? Case Studies From Asian Countries

Abstract

This study examines the nexus between foreign direct investment (FDI), trade openness (TRO) and economic growth for selected 11 high-income and 22 middle- and low-income Asian countries within a model using a more recent panel dataset over the period 2000–2021. The cointegration test has been applied in this study, which shows that whether there is a long-term interrelationship between FDI and economic growth, which we focus on in particular, and then the covariance matrix estimators that are developed by Driscoll and Kraay are used. Our findings indicate that there is a positive relationship between FDI and TRO, and economic growth for high-income countries, whereas the relationship between FDI and economic growth is negative for middle- and low-income countries. This study provides insights on why governments and policy makers in developing countries should focus on prioritizing domestic investment and production strategies for sustainable economic growth rather than simply emphasizing the attractiveness of FDI and the indispensability of import-oriented trade liberalization.