Effects Of Foreign Direct Investment Inflows Research Articles

Do natural resources and foreign direct investment tend to erode or support the development of national institutions?

AbstractThis paper explores the relationships between natural resources, foreign direct investment (FDI) and the quality of national institutions, also known as “the rules of the game”. Using a data set of 69 developing countries over the period 1970–2015 to estimate a dynamic panel data model, we find negative and significant effects of natural resources use or extraction on the development of national institutions. We focus on legal and property rights, but these findings also apply to the quality of some other national institutions. Our results align with a theory that abundant natural resources lead to weakened institutions because of the potential for firms to secure monopoly rents. Furthermore, we find that the effects of FDI inflows on institutional development are not robust to controlling for natural resources rents. This suggests that the latter tend to erode institutions regardless of whether those resources are exploited alongside increased foreign investment into the local economy.

Mediated Moderation Analysis in the Nexus of Investment in Human Capital and the Green Economy

Purpose – The purpose of this paper is to analyze the mediated moderation role of foreign direct investment inflows (FDI), along with technological innovation (TI), in the relationship between investment in human capital (IHC) and the green economy, which is often ignored in current literature. Design/Methodology/Approach – In order to estimate the mediated moderating effect of TI and FDI on the nexus of IHC and the green economy, we use principle component analysis (PCA) to create a green economy index (GEI) by first selecting 15 relevant variables. Furtherly, the data analyzed covers 33 OECD nations from 2005 to 2018 using a Generalized Method of Moments (GMM) model. Findings – This paper demonstrates that while FDI positively moderates the relationship between IHC and the green economy, the positive role of FDI can be hindered by TI as a mediating variable in OECD countries. The empirical result reveals a U-shaped association between IHC and the green economy. Moreover, we also explain the joint effect of FDI and IHC on TI in OECD countries. FDI shows a negative role in the impact of IHC on TI. Research Implications – This paper puts forward dialectical thinking to view the impact of human capital investment on the green economy, and suggests that governments should view role of IHC in the green economy dialectically, plus adequately utilize its promotional role to address associated risks. The findings can support decision makers in how to use IHC precisely to achieve the goal of sustainable development.

The impact of foreign direct investment inflows on nonperforming loans: the case of UAE

The banking sector is at risk of worsening loan quality, which is a major threat to the financial system’s stability. The impact of foreign direct investment (FDI) inflows on nonperforming loans (NPLs) in the United Arab Emirates (UAE) is empirically investigated in this study. The data from 2008 to 2017 are collected and analyzed through the ordinary least squares (OLS) technique. The findings reveal that FDI inflows reduced the size of NPLs during the economic crisis. Also, the combined effect of higher FDI inflows and bank efficiency reduced the size of NPLs for banks, while the combined effect of FDI inflows and better institutions, such as strong regulatory quality, did not reduce the size of NPLs but rather increased the size of NPLs. The findings have implications and contribute to the literature to establish a relationship between FDI inflows and NPLs by examining the relationship between FDI inflows and NPLs in the context of banks in the UAE.

The effect of FDI on low and high-skilled employment and wages in Mexico: a study for the manufacture and service sectors

This study analyzes the effect of Foreign Direct Investment (FDI) inflows on the employment and wages of low- and high-skilled employees in the manufacture and service sectors in Mexico. The study implements a quarterly panel dataset covering the 32 Mexican states from 2005 to 2018. The econometric model is estimated throughout Fixed-Effects (FE) and Panel Corrected Standard Errors (PCSE). Employment results indicate that an increase of FDI inflows into the manufacture sector creates a positive effect in low- and high-skilled employment. In the case of service sector, results are inconclusive across models for both categories of employment. In the case of wages, it is found that FDI inflows by the manufacture sector increase marginally in low-skilled wages and no statistical effect is captured in high-skilled wages. Lastly, in service sector, results indicate the effect of FDI inflows are inconclusive in the case of low-skilled and high-skilled wages.

Foreign direct investment (FDI) and economic growth in China: vector autoregressive (VAR) analysis

This study examines the impact of foreign direct investment (FDI) on economic growth in China based on time series data for the period 1981-2018. For an empirical study, we used vector autoregressive (VAR) analysis. Before building our VAR model, we performed tests for unit root, normality, and heteroscedasticity to certify the data quality. The optimal lag 3 was selected using the Akaike information criterion (AIC), Schwartz (SC), and Hannan-Quinn (HQ) criteria. The Granger causality test is additionally performed. Based on the VAR model, we determined the impulse responses and variance decomposition of log FDI and log GDP in China. The results showed a positive and consistent impact of log FDI on China’s economic growth. The impact in the short-term is insignificant, as it is likely that there are multiple factors drive economic growth of China besides FDI inflows. However, the impact of FDI increases to a significant level in the long-term. Which indicates that FDI is one of the main factors to enhance Chinese economy. In conclusion, we suggest a policy implication how to sustain and promote the existing positive effects of FDI inflows on Chinese economy.

Spillovers from foreign direct investment in services: Evidence at sub-sectoral level for the Asia-Pacific

We take a sectoral level approach to analyzing the effects of foreign direct investment (FDI) inflows. We disaggregate FDI first by manufacturing versus services, then within services by financial services, trade services, and business services. We consider the effects of FDI inflows on growth of GDP per capita, then distinguish between growth in manufacturing and services value added per capita. Our data sample comprises 14 Asia Pacific economies for the period 1985–2012 to which we apply a dynamic panel generalized method of moments estimation technique. Services FDI as a whole is found to have a significantly positive impact on GDP growth while manufacturing FDI is found to have no effect. The impetus for growth from services FDI traces to financial services in particular, acting not only directly on service sector output but through manufacturing sector output as well. By contrast, trade services FDI is found to have a significantly negative effect on manufacturing output with no significant effect on services output. Foreign participation in trade services may act to expose domestic manufacturers to international competition and may also lead to domestic consolidation to take advantage of economies of scale.

External Asymmetries in the Euro Area and the Role of Foreign Direct Investment

AbstractSoon after the introduction of the common currency, a divide emerged between two groups in the Euro area: one comprised of the North European countries achieving external surpluses and the other of the South European countries with large external deficits. This paper shows that different patterns of foreign direct investment (FDI) inflows across the Euro area countries contributed to this divergence. Our theoretical framework shows that if the economy is relatively capital‐intensive in the production of traded (non‐traded) output, FDI will be channelled in greater proportions to the traded (non‐traded) sector, thus improving (deteriorating) the trade balance. Focusing on ten Euro area countries over the period 1980 to 2009, we establish a positive (negative) long‐run effect of FDI inflows on the trade balance in the North (South). In the North, the positive effect stems from the traded sector FDI inflows that were significantly higher in comparison with the South, both before and after the EMU. In contrast, in the South, the increased FDI inflows in the post‐EMU era were dominated by investments in the non‐traded sector. When industry‐level data are employed, a positive (negative) long‐run effect of manufacturing (non‐manufacturing) FDI inflows on the trade balance in the North (South) is further established.

Is FDI Spillover Conditioned on Financial Development and Trade Liberalization: Evidence from UMCs

Developing countries take Foreign Direct Investment (FDI) as leverage for economic growth and development as a result of FDI technology spillovers. However, the effect of FDI inflows on economic growth of host countries is conditional on the abilities of those countries in absorbing and accumulating external knowledge. The related literature paid particular attention to the role of the financial system and trade liberalization of recipients. Thus, this paper investigated empirically the intermediary roles of the financial system and trade liberalization as Absorptive Capacity (AC) factors on the FDI led growth nexus. This study provided data evidence from 33 Upper-Middle-income Countries (UMCs) over the period of 1990–2011 to contribute to the existing literature. This empirical study employed the dynamic panel “difference” GMM estimator proposed by Arellano and Bond (1991); since it prevents the biases inherent to economic growth models including auto-correlation, unobserved heterogeneity, and endogeneity between explanatory variables. The results indicated the development of the domestic financial system facilitated FDI technology spillovers in order to enhance the economic growth of UMCs. However, the empirical findings also showed a negative effect of trade openness on stimulating the FDI spillovers.

Are the FDI inflow spillover effects on Malaysia's economic growth input driven?

This paper inspects the influence of human capital, labour force, and absorptive capacity, physical capital as a control variable, foreign direct investment (FDI) inflows and gross domestic product (GDP) on Malaysia's productivity growth. A time series quarterly data from the period of 1999 to 2008 was used. The effects of FDI inflows on human capital, labour force, absorptive capacity and physical capital were investigated. The Ordinary Least Squares (OLS) regression was applied to estimate the data in the first step and in the second step productivity indicators were calculated. The results show that the FDI inflows and inputs used are negatively contributed to total factor productivity (TFP). Meanwhile, FDI plays a significant role in achieving economic growth through input driven as indicated by the contribution of the TFP. In this regard, a significant positive relationship between human capital, labour force and absorptive capacity which determines the spillover effect on Malaysian economic growth (GDP) was found and the physical capital has shown negative relationship.