Economic Growth, Trade, and Foreign Direct Investment Interrelationships in South Asian Countries

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

The long run trade orientation of an economy is measured in this article by an index which measures the extent to which the real exchange rate is distorted away from its free trade level by the trade regime. The technique for estimating a cross country index of real exchange rate distortion uses the international comparison of prices prepared by Robert Summers and Alan Heston. Resource endowment constitutes the norm and real overvaluation or undervaluation relative to this norm reveals whether incentives are directed to the domestic or international market. The index is constructed based on data for GDP/capita average price level in US dollars 1976-85 and GDP growth rate/capita 1976-85. Other sections are devoted the comparison of the procedure for 117 countries between 1976-85 and an examination of the empirical relationship between outward orientation and economic growth and sensitivity analysis. The results indicate that Latin America generally was overvalued by 33% relative to Asia and Africa was overvalued by 86%. The real exchange rate distortion index supports the view that Asian countries are more outward oriented. Asian economies have lower price levels which reflect relatively modest protection and incentives oriented to external markets. Latin American countries with moderately high price level and African countries with very high price levels reflect strong protection and incentives directed to production for the domestic market. An alternative specification which eliminates the dummy variables for Africa yields similar results with slightly lower magnitude; i.e. overvaluation is 60% instead of 86% for Africa and Latin America is overvalued by 39% instead of 33% over Asia. A table is provided which indicates by country the distortion and variability of the real exchange rate the GDP growth the 1976 GDP/capita and the investment rate. Another finding was that there is a significant negative relationship between distortion of the real exchange rate and growth of GDP/capita after controlling for the effects of real exchange rate variability and investment level with both the original specification and the alternative. The growth rate/capita of Latin American and African countries would increase 1.5-2.1% with a shift to move outward oriented trade policies. This gain as well as devaluation of the real exchange reate trade liberalization and maintenance of a stable real exchange rate would contribute to positive growth rates. In the analysis of the poorest 24 countries the result was that only rate distortion and not variability and investment rate explained the growth rate. The gain for Ghana for example of adopting the trade policies and exchange rate of Bangladesh would be 5% to its growth.

The role of state policy in the industrialization of Third World nations has become the subject of increasing interest in recent years. In the past, the debate over economic development has either focused on the traditional modernization approach' or the dependency theory of underdevelopment.2 Dependency theorists base their model of development on the belief that foreign investment from core countries is harmful to developing nations' long-term economic growth. Economic relationships between the core and the periphery are structurally detrimental for the latter because of the inherent dynamics of international capitalism. Yet, despite the claims of dependency theory, the recent experience of the East Asian newly industrialized countries suggests a wider range of development possibilities which include government policies specifically designed to attract foreign investment. These countries appear to have structured their domestic economies in order to mitigate the pernicious effects of dependent relationships with core countries. This raises new questions about the development process and the role of policy and foreign investment in the economic transactions between core and peripheral countries. Dependency theory, a neo-Marxist predecessor of world-systems research, claims that First World nations become wealthy by extracting surplus labor and resources from the Third World. Capitalism perpetuates a global division of labor which causes the distortion of developing countries' domestic economies, declining growth, and increased income inequality.3 Those countries on the periphery cannot become fully modernized as long as they remain in the capitalist world

This empirical study investigates the determinants and growth effect of FDI in case of four South Asian countries over the period of 1995-2000. It comprises two major analytical parts. Firstly, we incorporate a gravity model equation using panel data in order to investigate potential determinants of foreign direct investment in these countries. Secondly, we use a growth model equation to investigate growth effect of foreign direct investment in the countries. In both analyses, we employ Arellano-Bond dynamic panel system method of moment estimation method. The results derived from this study suggest that: (1) the pulling, pushing and cyclical factors are crucially important in determining FDI in South Asian countries; (2) foreign direct investment in South Asian countries are significant and positively associated with growth rate, but seem to be having average supportive to the growth rate in these countries.

The aim of this paper is to investigate, within a Bootstrap panel causality approach, the interactions among foreign direct investment (FDI), international trade and financial development in BRICS-T countries (Brazil, Russia, India, China South Africa and Turkey). While the effect of foreign direct investment on economic growth is well documented, the consequences of FDI on financial development have not received as much attention. Previous studies have recognized that FDI is a crucial source of financing especially for emerging economies, though the benefit of FDI to recipient country is ambiguous. Furthermore, the number of previous studies examining the causal linkage between international trade and financial development is also limited. Besides, examining the associations among these factors, this study also investigates the joint effect of FDI and international trade on financial development in these countries. Empirical findings from a bootstrap panel causality approach indicate that FDI induce financial development in Brazil, Russia, and China. In addition, international trade promotes financial market development in Brazil, Russia and South Africa. Empirical findings also indicate that financial development stimulates international trade in Brazil, India and Turkey. Finally, it is found in this study that not only international trade stimulates FDI, but also FDI induce international trade in India and Turkey.

Against the backdrop of impressive economic growth, the attractive foreign direct investment (FDI) and international trade of Asian countries, this study attempts to examine whether trade-offs between three aspects of economic growth, FDI, international trade and environmental degradation. Panel Autoregressive Distributed Lag (P-ARDL) model with pooled mean group estimates has been applied on panel data from 1996 to 2019. Panel Vector Error Correction model (VECM) Granger causality test is also used to identify multidimensional causal relationships between variables. The research results confirm the existence of a long-term equilibrium relationship between environmental degradation (CO2 emission) and the combination of economic growth, FDI and trade openness. In the short run, income positively affects CO2 emission while negative impacts and lower income elasticity have been found in the long run, implying that CO2 emission decreases and reverses its direction when income rises. Contrasting results collected from two groups of developed versus developing countries, the author reveals a linear relationship with a positive direction between economic growth and environmental degradation in developing countries while opposite results have been shown in developed nations, which supports the environmental Kuznets curve hypothesis in Asian countries. This study also provides sound proof for the ‘pollution haven hypothesis’ and the scale effects on FDI attraction and international trade. By applying relatively new estimators in the field of econometrics to compare the differences between Asian developed and developing countries, the research highlights the appropriate policies contributing to sustainable economic growth, attractive FDI and growing green trade with minimum adverse effects on the environment. JEL Codes: C33, F18, F21, F43, O44, Q40, Q51, Q53

This research aims to examine foreign direct investment and carbon dioxide (CO2) emissions in ASEAN-5 countries, including Indonesia, Malaysia, the Philippines, Singapore and Thailand during the 2000-2020 period. The analytical method used is simultaneous equation analysis. The results of the foreign direct investment simultaneous equation research show that CO2 emissions, economic growth, international trade, and renewable energy consumption simultaneously have a significant effect on foreign direct investment in ASEAN-5 countries. Partially, CO2 emissions have a significant and negative effect on foreign direct investment. International trade has a significant and positive effect on foreign direct investment. Meanwhile, economic growth and renewable energy consumption have no effect on foreign direct investment. Furthermore, the results of the simultaneous equation analysis of CO2 emissions show that foreign direct investment, renewable energy consumption, population, and energy intensity simultaneously have a significant effect on CO2 emissions in ASEAN-5 countries. Partially, foreign direct investment, population, and energy intensity have a significant and positive effect on CO2 emissions, while renewable energy consumption has a significant and negative effect on CO2 emissions in ASEAN-5 countries.

This study investigates the effects of financial crises on economic growth and foreign direct investment in some African countries. A panel vector error correction model is used for the analysis of annual time series data for the period 1994 to 2014. From economic growth model, in the long run, it is observed that gross domestic product per capita is positively influenced by investment, trade and foreign direct investment; with investment and trade being statistically significant. Gross domestic product per capita has a negative significant relationship with real effective exchange rate. On the other hand, in the long run, the investment model shows that investment has a significant positive relationship with both gross domestic product per capita and investment; while it has a negative significant relationship with real effective exchange rate and trade. Also observed from the results is that financial crisis has a negative relationship with both economic growth and foreign direct investment. This study recommends more openness of the economy so as to promote both economic growth and inflow of foreign direct investment in countries. It also recommends the need to encourage more gross fixed capital formation in order to promote both economic growth and foreign direct investment.

The dynamics of ICT, foreign direct investment, globalization and economic growth: Panel estimation robust to heterogeneity and cross-sectional dependence

Inward foreign direct investment (FDI) plays a crucial role in the economic development of less and least developed countries. While these firms have the potential to positively influence economic development in host countries, they may also become dominant. This can lead to various challenges, such as market distortions, competitive challenges for domestic firms, increased dependency of the domestic industry and fiscal policy on large foreign investors, and potentially adverse social and environmental impacts. Ultimately, the quality of the host country’s institutions and governance determine whether inward FDI is a curse or a blessing. This is especially true for natural resource industries. This literature-based theoretical thesis paper argues that the institutional circumstances of least and less developed countries often have negative implications for inward foreign direct investment (FDI), such as weak governance structures and corruption. Therefore, it is imperative that home countries assume responsibility for their investors in these countries so that the right kind of foreign investors lead to a mutually beneficial outcome for investors and the host economy.

During the late 1970s and early 1980s, many African countries experienced a profound slowdown in economic growth. The growth rate of real per capita GDP fell from 0.4% per year during the 1973-80 period to 1.2% per year during the 1980-89 period.' The causes-internal and external-of Africa's economic decline and the strategies for restoring economic growth are much debated. Nevertheless, broad consensus has emerged on the importance of (i) increasing total investment and (ii) promoting private-sector development and increasing its share of total investment for long-term growth.2 It is widely recognized that gross domestic investment fell substantially in Africa during the 1980s and remains severely depressed across the region. The proportion of total domestic investment in GDP fell from 20.8% per year during 1973-80 to 16.1% per year during 1980-89. In some countries, investment has fallen to less than 10% of GDP-a level that is insufficient even to replace depreciated capital. In Africa, the minimum investment needed to replace depreciated capital is estimated at 13% of GDP.3 In recent years, there has also been a growing recognition among many African leaders, faced with new realism and pragmatism, that the private sector could play a significant role in economic development. The focus in the longer term of structural adjustment programs and sectoral reforms adopted by these countries is on creating more appropriate incentives and a framework for private-sector development as the basis for achieving sustainable economic growth. In addition, multilateral and bilateral institutions have developed new initiatives with priorities for private-sector development. In 1989, the International Finance Corporation, an affiliate of the World Bank, es-

This paper examines how capital flight, loan interest rates, inflation, exchange rates and economic growth influence foreign direct investment in the ASEAN-8 countries. We apply fixed effect estimation to panel data for data belonging to eight countries from the period 1994 to 2018. The results show that capital flight and economic growth have a positive and significant effect on foreign direct investment. An increase in capital flight, capital retain from sources of funds which greater than the use of funds, has encouraged foreign direct investment to increase. Furthermore, increased economic growth has stimulated foreign direct investment. We find that an increase in loan interest rate (SIBOR), inflation and depreciation of the exchange rate triggers a significant decline in foreign direct investment. This finding implies that capital retention from capital flight and economic growth are the main factors that create an increase in foreign direct investment in the ASEAN-8 countries. Meanwhile, loan interest rates (SIBOR), inflation and depreciation of the exchange rate are the risk factors that investors need to consider when investing in those particular countries. This paper is useful for policy makers in the ASEAN-8 countries to consider these five variables, as the important factors that significantly influence foreign direct investment in the ASEAN-8 countries.

Information and communication technology (ICT) is one of the key sectors promoting economic growth in the present modern era of globalization. It promotes technological advances in global communications as well as production techniques and contributes to economic growth and development. Most of the economic activities, including international trade and foreign direct investment (FDI), are largely dependent on various modern sources of ICT. The objective of this study is to examine the dynamic relationship between FDI, ICT, trade, and per capita gross domestic product growth across the South Asian Association for Regional Cooperation (SAARC) developing nations from 2000 to 2017. We have used different panel estimates such as fully modified ordinary least squares, dynamic ordinary least squares, Fisher–Johansen cointegration test, panel autoregressive distributed lag, and Dumitrescu–Hurlin causality. We found existence of unidirectional causality from FDI to ICT and bidirectional causal relationship between trade and ICT. The outcome of our study suggests policy recommendations for improving the standards of ICT, specifically focusing on economic growth, trade openness, and facilitation of foreign investment in the SAARC countries.

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Introduction. Attracting investment is a necessary prerequisite for economic development. An investment is an asset or tangible asset that is acquired for the purpose of generating income or increasing value. In an economic sense, investment is the acquisition of goods that are not consumed today but used in the future to create wealth. In finance, an investment is a monetary asset acquired with the idea that it will make a profit in the future or later be sold at a higher price for profit. The purpose of the paper is to explore the opportunities and threats from China's foreign direct investment in Ukraine's economy. Results. The role of foreign investment in the country's economy is investigated. Analyzing the tendencies of attracting international investments, it was found that these are significant investments, which can significantly contribute to the development of the economy. It is proved that this is relevant for the countries that specialize in the production of raw materials and require financial resources to modernize production and attract innovative technologies. Opportunities and threats from foreign direct investment are considered on the example of Ukraine and China. Direct investments (equity) in the Ukrainian economy by regions are analyzed. The direct investments from the countries of the world in the economy of Ukraine in January-September 2019 are analyzed. It is substantiated that the level of investment attractiveness depends on the average level of tariff protection of the markets. Expected opportunities and threats from China's foreign direct investment in Ukraine's economy are highlighted. It is argued that a possible positive consequence of attracting investment from China could be an increase in industrial production and an increase in the number of agricultural processing enterprises. Conclusion. Analyzing China's investment policy, it should be noted that there is a small amount of investment in Ukraine. At the same time, there is considerable potential for its growth. In order to stimulate China's foreign direct investment in the Ukrainian economy, a transparent and objective system of protection of creditors' and property rights, an effective system of relations between creditors and local authorities is needed. An expected positive consequence of attracting investment from China could be an increase in industrial production and an increase in the number of agricultural processing enterprises.