Foreign direct investment and its influence on China’s economic growth: A comprehensive review

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

PurposeThe direction of the causality relationship between Foreign Direct Investment (FDI) and economic growth is a highly controversial issue in the literature. There are two basic approaches advocating different causal directions between FDI and growth, which are called hypotheses of FDI-led Growth and Growth-led FDI. The aim of this study is to analyze the causality relationship between FDI and economic growth in RCEP countries and thus make a new contribution to the discussions in the relevant literature. In addition, the results of the study are expected to provide important implications for the policies to be designed for economic growth based on FDI flows to RCEP countries. Thus, by examining the direction of causality between FDI and economic growth in RCEP countries, we aim to provide a new contribution to related literature and make some implications for the policy design process of economic growth in the RCEP area.Design/methodology/approachWe empirically examined the direction of a causal link between FDI and economic growth in the context of Regional Comprehensive Economic Partnership (RPEC) countries in order to test the hypothesis of FDI-led growth and Growth-led FDI. Accordingly, as our main variables of interest, we incorporated the inward foreign direct investment stock to gross domestic product ratio (FDI) and gross domestic product per capita (GDP). Hatemi-J (2012) asymmetric causality test has been employed in the investigation of the direction of causality between FDI and GDP over the period of 1980–2020. Thus, unlike most of the studies investigating the direction of causality between FDI and growth using the linear causality analysis method, our study performed a nonlinear causality analysis.FindingsEmpirical results reveal that the causal relationship between FDI and national income in RPEC countries is non-linear or asymmetric . The results of the symmetric causality test for both from FDI to national income and from national income to FDI are statistically insignificant for all countries. Therefore, this finding obtained from the study provided an important guide to the econometric methods to be used in other studies to be conducted in the same region in the future. Concerning the asymmetric causality relationship from FDI to growth, positive FDI shocks are an important cause of national income in most RCEP countries. However, the effect of negative FDI shocks on national income is quite weak compared to positive shocks. Regarding the asymmetric causality relationship from growth to FDI, positive national income shocks do not create a significant causal relationship with FDI. Similarly, the effects of negative national income shocks on FDI are statistically insignificant. Overall, asymmetric causality test results reveal that positive FDI shocks have an important causal impact on economic growth in most RCEP countries. Thus, the results of econometric analysis mostly support the argument that the FDI-led growth hypothesis rather than the Growth-led FDI hypothesis in RCEP countries. Accordingly, policy-makers in most of the RCEP countries should continue to provide more incentives and facilities to multinational companies in order to ensure constant economic growth.Originality/valueOur study brings a significant difference in the econometric method used compared to most of the other studies in the literature. Existing empirical studies on the direction of causality between FDI and growth mostly use standard Granger-linear causality-type tests to detect the direction of causality among FDI and growth. Unlike most of the studies in the literature, our study adopted a different methodological approach, namely the Hatemi J test to detect the non-linear causality between FDI and economic growth in RCEP countries. Therefore, this paper made a new methodological contribution significantly to the literature focusing on the causal relationship between FDI and economic growth by using a non-linear causality method rather than a linear causality one.

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.

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-

Purpose – This paper investigated the effects of International Capital Flows (ICF) on Turkish banking sectors profitability from 1975 to 2016. The study is motivated (1) by the fact that ICFs can be growth engines and/or a source of instability (according to their volatility, the way of used or the environment); (2) by the scarcity of studies related to their effects on banking sector due to the concentration of previous studies on economic growth. Design/methodology/approach – ICFs are examined in this study with a close interest to their five subcomponents and their effects on different types of Turkish banks. Two differents modèles (linear and non-linear) were used with Panel GMM based on 1974 observations. Variables used were: Return On Equity and Return On Asset of the banking sector as dependent variables; Foreign Direct Investments, Foreign Portfolios Investments, External Debts Flows, External Aids and Remittances as independent variables; GDP growth rate, inflation rate, interest rate, and trade openness as control variables for robustness check. Findings – The main findings were as follows: Foreign Direct Investments, External Aids and Remittance had positive effects on banking profitability (ROE) in Turkey; while Foreign Portfolio Investments and External long Term Debts had negative effects. In addition, only Foreign Direct Investments had positive effects on banking profitability (ROA). Other capital flows’effects remained insignificant. Discussion – The negative effects of portfolios assumes that investors chose to invest more in stock market and other capital markets than in banking sector for the considered period. The negative effects of External Debts assumes that the acceptable threshold for debt was crossed.

Purpose: A country's level of external debt and economic growth trends are regarded as imperative factors in attracting foreign direct investments of a country. Most developing countries are faced with high levels of external debt and lower growth. Due to such concerns, South Africa is among the developing countries that attract limited foreign direct investment. While investment is crucial for economic growth, hence an increase in foreign direct investment is beneficial for economic growth, especially in host economies. Thus, the study at hand examines the linkage between foreign direct investment, external debt, and economic growth of South Africa, using secondary time series data spanning from the periods of 1994 to 2021. Method: In attaining the study aim, the study employed the following econometric techniques, unit root tests, autoregressive distributed lag cointegration bound test, diagnostic tests, and stability tests. Results: The unit root results revealed that the variables are I(0) and I(1). The study distinguished a long-run link between foreign direct investment, external debt, and the economic growth of South Africa during the study period. Originality/relevance: The study contributes to existing literature on foreign direct investment, external debt and economic growth, and offers new recommendations from the South African context from 1994 to 2021. Hence, the analyzes in this study are important in guiding policies on foreign direct investment, external debt, and economic growth.

Institutional Quality and Income Distribution

Using panel data methods to analyze data from 14 Latin American countries from 1978 to 2003, this paper empirically examines the links between foreign direct investment (FDI), local conditions, and economic growth. The results suggest that FDI plays an important role in contributing to economic growth. However, the effect of FDI on economic growth is dependent on host economy–based conditions. The empirical results from this study show that there is a positive interaction effect of FDI with technology gap and a negative interaction effect of FDI with the level of school attainment on economic growth. Furthermore, the empirical results from the FDI equation suggest that inflation, trade, school attainment, and telephone lines are the most determinant of location decisions for foreign investors. To explore the relationship between FDI and economic growth further, this paper examines Granger-causality between FDI and economic growth. Our empirical evidence shows that the direction of causality is from economic growth to FDI and not the reverse for Asian countries. Therefore, the causal link between FDI and economic growth is unidirectional. We also provide evidence that the link between FDI and economic growth is bidirectional for Latin American countries, which indicates that economic growth initially could attract more FDI, which, in turn, would then result in accelerated economic growth.

Economic theory argues that foreign direct investment (FDI) and external debt are expected to enhance economic growth in any given economy. Consequently, this study (i) investigated the relationship between foreign direct investment, external debt servicing, and economic growth in Nigeria; (ii) investigated how foreign direct investment and external debt impact Nigeria’s economic growth; and (iii) analyzed the direction of causality among the three macroeconomic variables. Descriptive statistics, time series autoregressive distributive lag, and robust Granger causality tests were adopted as the estimating techniques. The results showed that from 2011 to 2022, Nigeria’s FDI continued to decline, Nigeria’s external debt servicing continued to grow on an upward trajectory, and the growth of the GDP has been meandering. ARDL analysis results confirmed that the lag of FDI and current exchange rate exert positive effects on current economic growth in Nigeria, with a 1% increase in FDI, current external debt, and current exchange rate increasing growth by 1.49%, 1.58%, and 0.02%, respectively. Results from the Granger causality showed that FDI and external debt do Granger cause GDP in Nigeria. Policymakers should focus on prudent debt management practices and strive to reduce domestic debt levels.

Relevance. Foreign investment is likely to be attracted to resource-rich countries because of their wealth of natural resources. However, the fact that foreign direct investment (FDI) contributes less than 10% of these countries’ GDP indicates that FDI has a non-proportional impact when compared to the size of the natural resources. Hence, it is critical to identify the missing link impeding resource optimization through FDI. Research objective. Given the significance of FDI, the study seeks to ascertain whether the quality of institutions in resource-rich countries influences FDI inflows. This is significant because resource-rich countries may have other factors that encourage FDI but do not result in resource optimization. Data and methods. The study employed panel data analysis to analyze the impact of FDI on economic growth in resource-rich countries and the role of institutions in attracting FDI. The study relies on the Augmented Mean Group Estimator and on the annual data from the World Bank's World Development Indicator and the World Bank's World Governance Indicator for the top ten resource-rich countries. Results. Our preliminary evidence indicated that FDI had a positive and significant effect on economic growth in resource-rich countries. The extent of the influence, on the other hand, is minimal for all categories of countries. Our main results revealed that institutional quality has a significant pull effect on FDI, with trade openness playing a key role, particularly in resource-rich nations with well-developed institutions. Conclusions. We found that institutional quality plays a critical role in attracting FDI, which could have hampered natural resource optimization. Furthermore, countries with high institutional quality and less restrictive investment policies attract more foreign direct investment (FDI) than countries with low institutional quality and with investment policies ranging from moderate to restrictive. In general, resource-rich countries, particularly those with weak institutional qualities, should address the gap in institutional quality to attract more inward investment.

Nigeria's adoption of a floating exchange rate regime in 2016 marked a pivotal shift in its cur- rency policy, with significant implications for capital flows and investment. This paper examines how the transition from a de facto peg of the Naira to a more flexible exchange rate has affected foreign capital inflows and investment behavior. We outline key research questions on whether a floating Naira has attracted short term portfolio investments or deterred long term foreign direct investment (FDI), and we hypothesize divergent effects on these capital flow components. Using econometric analysis on data from 2000-2021, we employ time series models to assess changes in capital inflows before and after the float, controlling for global push factors and domestic eco- nomic conditions. The results indicate that the post-2016 floating regime coincided with a surge in volatile portfolio inflows (notably into equities and money markets) but a short run decline in FDI (as a share of GDP). These findings contribute to exchange rate theory by highlighting the trade off between exchange rate flexibility and investment stability. Policy implications suggest that while a float can restore investor confidence in the currency's price mechanism, complementary measures are needed to attract stable, long term investment. KEYWORDS: Naira, Floaating exchange rate, Capital flows, Foreign direct investment, Portfolio investment, Nigeria Bibliography • Adeoye, B. W., & Atanda, A. A. (2012). Exchange Rate Volatility in Nigeria: Consistency, Persistency & Severity Analyses. CBN Journal of Applied Statistics, 2(2), 29-49. • Busse, M., Hefeker, C., & Nelgen, S. (2010). Foreign Direct Investment and Exchange Rate Regimes. MAGKS Joint Discussion Paper Series, No. 2010-15, Philipps-Univ. Marburg. [5] • Copley, A. (2016, May 27). Nigeria introduces dual exchange rate regime. Brookings - Africa in Focus. [1] • Eregha, P. B. (2019). Exchange Rate Regimes, Capital Inflows and Domestic Investment in WAMZ. African Development Review, 31(1), 88-99. • International Monetary Fund (2016). Nigeria: 2016 Article IV Consultation Selected Issues. IMF Country Report No. 16/102. [25][26] • Jibir, A., & Abdu, M. (2017). Foreign Direct Investment-Growth Nexus: The Case of Nigeria. European Scientific Journal, 13(1), 17- 34. • Journal of the Saudi Heart Association (2019). Author Guidelines: Original Articles. (Guideline stating "Include 3-6 keywords following the abstract"). [27] • Olowookere, A. (2017). Exchange Rate Misalignment and Stock Market Performance in Nigeria. Nigerian Journal of Securities Market, 2(1), 15-29. [11][28] Oshikoya, T. (2016, April 15). The IMF on Nigeria's net capital flows mirage. BusinessDay Analysis. [17][9] • Osinubi, T. S., & Amaghionyeodiwe, L. A. (2009). Foreign Direct Investment and Exchange Rate Volatility in Nigeria. International Journal of Applied Econometrics and Quantitative Studies, 6(2), 83- 116. • Oyegoke, E. O., & Aras, O. N. (2021). Impact of Foreign Direct Investment on Economic Growth in Nigeria. Journal of Management, Economics, and Industrial Organization, 5(1), 31-38. [29] [30] • World Bank (2022). World Development Indicators. (Foreign Direct Investment inflows and GDP data for Nigeria). [13][18]

Achieving higher level of economic growth in order to enhance social welfare is one of the primary motives of every country. However, developing countries have yet not achieved the desirable level of economic growth due to several socioeconomic and political factors prevailing domestically as well as globally. Therefore, the main purpose of this study is to empirically examine the effects of various external sources namely foreign remittances, foreign direct investment (FDI) and some other notable variables exports and investment on economic growth measured by real GDP per capita in 12 countries from Europe and Central Asia (ECA). This study utilizes annual panel data over the period of 1993–2013 for empirical investigation. After checking stationary properties of the data, Panel Ordinary Least Squares, Fully Modified OLS and Dynamic OLS methods have been employed as analytical techniques for parameters estimation. Empirical result reveals that foreign remittances and FDI inflows have significant positive effects on economic growth in ECA during the period under the study. In addition, the empirical results show that exports and investment also accelerate economic growth. The results of Dumitrescu and Hurlin causality test demonstrate that foreign remittances cause economic growth and economic growth causes FDI inflows. The feedback effect exists between external debt and economic growth. Economic growth leads exports validating growth-led exports hypothesis. Incoming FDI causes exports and exports cause FDI in Granger sense. Furthermore, the feedback hypothesis is valid for foreign aid and external debt, exports and external debt, exports and investment. The main points emerging from this study purport that both foreign remittances and FDI inflows are vital sources of economic growth in ECA. The findings are expected to guide the management authorities with reference to the effects of foreign remittances and incoming FDI on ECA economic growth and development. Moreover, ensuring macroeconomic stability in the recipient countries can help to create environment conducive to investment, thus, encourage immigrants and foreign investors to transfer remittances and make investments with higher degree of confidence. Consequently, it would have a positive multiplier effect on the entire macroeconomic performance of ECA economies.

The impact of different types of capital flows on China’s economic growth has been widely studied to determine whether the type of capital significantly affects the Chinese economy. The purpose of this study is to investigate the relationship between long-term capital flows and economic growth in China, considering factors such as Foreign Direct Investment (FDI), portfolio equity, portfolio bonds, and external debt. All secondary data were collected from the World Bank database. The paper also investigates which type of capital flow has the most significant relation with the economic growth of China. A quantitative approach was chosen for the study. Moreover, to overcome the bias output of ordinary least squares, this paper deployed a Two-Stage Least Squares (2SLS) estimation method. This study has found a relatively stable positive relationship between FDI and growth, where the coefficient of 0.9699 indicates that a 1% increase in FDI is associated with a 0.97% growth in Gross Domestic Product (GDP). Similar to FDI, portfolio equity has a positive impact on GDP growth, with a coefficient of 2.1419. In contrast, portfolio bond and debts have a negative coefficient of –1.7752 and –0.2831. These findings contribute to a deeper understanding of China’s development experience, particularly regarding the role of capital flow. The paper explores two key limitations that need to be explored in the future, i.e., the causal relation between each type of long-term capital flow and economic growth, and the impact of COVID-19 on the economic growth relationship.

The economic growth of most developing countries has been abysmal, and, therefore, has attracted the attention of researchers and policy think tanks. The present study contributes by estimating the impact of different forms of capital inflows on economic growth with evidence from Ghana. The study further examines the interaction effects of these inflows and quality of institutions on economic growth. The capital inflows considered in the study are foreign direct investment, remittances, foreign aid and external debt. Using annual time series data, spanning 1984–2018, the autoregressive distributed lag model is employed for the analysis. The results without interaction terms show that remittances have a positive impact on economic growth, whereas external debt and foreign direct investment impact economic growth negatively in the long run. Foreign aid exerts an insignificant impact in both the short and long run. However, the results reveal that external debt significantly impacts economic growth positively when interacted with quality of institutions variable in the long run. The results further reveal that remittances have a positive impact on economic growth in the long run when interacted with quality of institutions variable. It is, therefore, concluded that the quality of institutions in Ghana is crucial for economic growth. Important policy implications aimed at improving economic growth have been provided based on the findings.

This study investigates the impact of institutional quality and foreign direct investment (FDI) on the economic growth of South Asia from 1996 to 2021. The analysis employs various statistical techniques, including panel unit root testing, panel cointegration testing, and Panel Autoregressive Distributive Lag (PARDL) models, to gain insights into the region's economic development. For finding the association between institutional quality, FDI, domestic investment and economic growth in South Asia, first tried to check the unit root problem in the selected series by employing the panel unit testing and results of these tests conclude that some variables are integrated at level while some other variables are integrated at the first difference, so for testing the cointegration or long-run relations among these variable the panel cointegration tests are employed and these tests conclude the long-run association among the variables. For checking the long and short-run impact of institutional quality, FDI, domestic investment and economic growth the panel ARDL test is employed. The results demonstrate the significant positive long and short-run impact of institutional quality, FDI, domestic investment on economic growth in the region of South Asia. These relationships demonstrate the persistent nature of interactions among these variables, emphasizing the importance of policies that promote strong institutions, attract foreign investments, and stimulate domestic capital formation to sustain regional economic growth. The study offers critical recommendations for South Asian countries to enhance their economic growth by focusing on the strengthening institutional quality, encouraging FDI, developing the special economic zones, promoting domestic investment, investing in the infrastructure and promoting regional economic integration. These recommendations offer a clear path for South Asian countries to achieve sustained economic growth by addressing the interplay between institutional quality, FDI and domestic investment dynamics. By implementing these measures, South Asia can secure lasting prosperity and enhance the well-being of its people in a rapidly evolving global economic landscape.