Global FDI Inflow and Its Implication across Economic Income Groups

Udi Joshua,Mathew Ekundayo Rotimi,Samuel Asumadu Sarkodie

doi:10.3390/jrfm13110291

Abstract

Foreign direct investment (FDI) as a driver of growth is important in today’s globalized economy. It is extremely difficult for economies to grow sustainably without economic interactions outside their borders. However, there has been a debate on the impact of FDI inflow on economic expansion. Hence, this study investigated the influence of FDI on economic growth for a selection of 200 economies around the world for the period 1990–2018. We subdivided the sample into World Bank income group clusters to aid comparison across income blocs. The study employed panel estimation techniques including pooled ordinary least squares (POLS), dynamic panel estimation with fixed-effects and random-effects and generalized method of moments (GMM). The study found that FDI, debt stock and official development assistance are promoters of growth in the selected countries—although debt stock weakly impacts economic growth. In contrast, trade openness and exchange rates had a mixed (negative and positive) influence on economic growth. The study suggests that the creation of a conducive business environment and economic policies will attract FDI inflows. Additionally, borrowing from external sources could be minimized despite its perceived positive influence on growth to achieve financial independence.

Highlights

It is an established assertion that investment is a key component of economic growth in every economy as stated by the classic theory of economic growth
Foreign direct investment (FDI) according to Joshua et al (2020a) is the investment of foreign resources presumed to be a panacea for economic growth through its complementary role for the recipient country, developing economies, which normally suffer from limited domestic resources
The results showed that FDI inflow positively influences economic growth via its effect on the manufacturing sector for the economies of twelve aligned Asian regions

Summary

Introduction

It is an established assertion that investment is a key component of economic growth in every economy as stated by the classic theory of economic growth. Africa continued to witness a drastic fall from 2016 by 21%, amounting to US$42 billion, while Asia, which is the highest recipient in the world, witnessed stability of FDI inflow equivalent to US$476 billion This could not be sustained over time, as global crises continued to loom. This study set out to investigate the influence of FDI inflow on economic growth among the World Bank income clusters to achieve the following two specific objectives: first, to ascertain the level of the impact of FDI inflow on economic growth in the context of the global crises, and second, to reaffirm the validity of the modernization theory, which asserts that FDI inflow benefits emerging economies more than their developed counterparts. Presentation of results and interpretation, and the conclusion and recommendations are presented in Section 3, Section 4, and Section 5, respectively

Literature Review

Data and Methods

Model and Methods

Results and Discussion

Conclusions