Encouraging Foreign Direct Investment Research Articles

A Study of Long-Run Equilibrium Relationship Between Foreign Direct Investment and Its Key Determinants in Malaysia

This study investigates the long-run equilibrium relationship between foreign direct investment (FDI) and its key determinants in Malaysia. Employing the Autoregressive Distributed Lag (ARDL) model on annual data between 1971 and 2021. The key findings confirm a long-run equilibrium relationship between FDI and the selected macroeconomic variables as a group. However, the individual impact of gross domestic product, inflation, exchange rate, and trade openness on FDI is not statistically significant when analyzed separately. Specifically, the long-run results suggest that the determinants do not have significant effects on FDI. Meanwhile, the short-run relationship between FDI and its determinants in Malaysia reveals a complex interplay of factors. Inflation and exchange rates play significant roles, with inflation generally encouraging FDI and exchange rate volatility creating mixed effects. Trade openness on the other hand shows some short-run significance but it is not consistently impactful. The error correction (ECM) model also confirms the existence of a long-run relationship. It highlights that while short-term fluctuations can occur, FDI tends to move towards a long-term equilibrium influenced by a relatively moderate speed of adjustment. The key conclusion implies that FDI is influenced by the combined effect of these variables in the longer term, but the individual contribution of each variable is not strong enough to stand out statistically. This research contributes to the understanding of FDI dynamics in Malaysia by providing insights, thereby informing policymakers and investors about effective strategies to attract and leverage FDI for sustainable development.

Quantile Effect of Economic Factors and Energy Consumption on Environmental Degradation in Vietnam

This study aims to highlight the asymmetric impact of economic growth (GDP), trade openness (TO), energy consumption (EC), foreign direct investment (FDI), and financial development (FD) on carbon dioxide (CO2) emissions in Vietnam over the period 1990–2022, using quantile-on-quantile regression and Granger causality in quantiles techniques. Our mainstream findings indicate that the selected macroeconomic indicators have a strong positive effect on CO2 emissions in this country, and this effect is more pronounced in the lowest and highest quantiles of the respective variables. In addition, the results of Granger causality suggest a bidirectional causal relationship between the examined indicators. These findings suggest that fostering economic growth, promoting trade openness, managing energy consumption, encouraging foreign direct investment, and enhancing financial development can contribute to a sustainable environment in Vietnam.

Foreign direct investment and carbon emissions in ECOWAS: does good governance matter?

PurposeThe present study investigates the effect of foreign direct investment (FDI) and governance quality on carbon emissions in the Economics Community of West African States (ECOWAS).Design/methodology/approachTo achieve the objective of this research, panel data for dependent and explanatory variables over the period 2005–2016, collected in the World Development Indicators (WDI) database and World Governance Indicators (WGI), are analyzed using the generalized method of moments (GMM). Also, the panel-corrected standard errors (PCSE) method is applied to the four segments of the overall sample to analyze the stability of the results.FindingsThe findings of this study are (1) FDI inflows have a negative effect on carbon emissions in ECOWAS and (2) The interaction between FDI inflows and governance quality have a negative effect on carbon emissions. These results show the decreasing of environmental damage by increasing institutional quality. However, the estimation results on the country subsamples show similar and non-similar aspects.Practical implicationsThis study suggests that policymakers in the ECOWAS countries should strengthen their environmental policies while encouraging FDI flows to be environmentally friendly.Originality/valueThe subject has rarely been explored in West Africa, with gaps such as the lack of use of institutional variables. This study contributes to the literature by drawing on previous work to examine the role of good governance on FDI and the CO2 emission relationship in the ECOWAS, which have received little attention. However, this research differs from previous work by subdividing the overall sample into four groups to test the stability of the results.

The role of digitalization, infrastructure, and economic stability in tourism growth: A pathway towards smart tourism destinations

AbstractThis study shows the impact of information and communication technology (ICT), inflation, economic growth, foreign direct investment (FDI), infrastructural development, and financial development on the global tourism index across all income groups. We use a generalized method of moments technique, novel index of tourism, and ICT in 130 countries from 1995 to 2019. The empirical results infer an increase in tourism due to sustained growth in ICT (all panels), economic growth (all panels), FDI (all panels), financial development (all panels), and infrastructure development (all panels). This study highlights the importance of increasing 4G networking in remote areas and introducing reliable mobile applications to promote smart tourism, which involves setting up a Tourist Information Centre to guide tourists in terms of traveling, accommodation, food, shopping, parking, history of specific places, healthcare services, weather forecasting, and emergencies. The central bank could ensure price stability by using different tools of monetary and fiscal policy while encouraging FDI and ICT infrastructure in the tourism industry, especially in developing countries. Tourism is directly associated with foreign exchange earnings, which in turn increases the financial strength of an economy. Besides, prioritizing investment in infrastructure, particularly in sanitation and waste management, drinking water supply, clean fuel management, and generation of electricity, could bolster tourism. The contribution of this study employs multiple indicators in the form of a composite index (i.e., global tourism index, ICT index, and infrastructure index). In addition, we have developed a global ICT index using several related indicators.

Can International Business Perspective Measure Sustainable Development of BRICS Countries? A Panel Data Analysis

The level of international business is highly dependent on the numerous macroeconomic and sustainable development factors that play their respective roles in defining a developing nation's economic progress. While examining the long-term growth of an economy, the consistency of the performance of the various elements in terms of their sustainability is a crucial matter to investigate. Moreover, it is known that the sustainable development of an economy is strongly associated with environmental impacts. Finally, the focus on new development patterns must be the highest concern for emerging economies. Considering this, the current study speculates on the relationship between foreign direct investment and the interaction effect of carbon emissions and poverty with control variables such as per capita income and education in BRICS economies. It concentrates on panel data ranging from 1993 to 2019 to explore the association among the said variables. It identifies the unique and definite macroeconomic parameters that are crucial for encouraging foreign direct investment in different countries. Applying the Panel Auto Regressive Distributed Lag Model, the study finds a positive interaction effect between carbon emissions and poverty that focuses on improving foreign direct investment in the long run. In the short run, an increase in per capita income always proves that BRICS will demonstrate less dependence on FDI net flows. The study also concentrates on the unit root measurement of the data by applying Panel Unit Root Test. Finally, to check the direction of causality, Pairwise Dumitrescu Hurlin Panel Causality Tests have been performed. The most recent update from these countries demonstrates that the strategy for achieving future sustainable economic growth is clear and swift. Hence, it emphasises the requirement of separate and exclusive policy-making to promote long-term sustainable economic growth in BRICS.

Unveiling the Interplay of Institutional Quality, Foreign Direct Investment, Inflation and Domestic Investment on Economic Growth: Empirical Evidence for Latin America

Uplifting economic growth is crucial for the sustained development and prosperity of an economy. The main objective of this study is to investigate the impact of institutional quality, foreign direct investment (FDI), inflation, and domestic investment on the economic growth of Latin America from 1996 to 2021. The study utilizes a combination of panel unit root testing, cross-sectional dependency testing, panel cointegration testing, and the Panel Autoregressive Distributive Lag (PARDL) technique to shed light on the dynamics of the region's economic development. The panel cointegration techniques confirm the existence of a long-run relationship among the selected variables over the chosen time frame. The PARDL technique is employed to determine the short- and long-run impact of institutional quality, FDI, inflation, and local investment on the economic growth of Latin America. The results show that institutional quality, FDI, and local investment have a significant positive impact on the economic growth of Latin America, while inflation has a negative impact. These findings suggest that policymakers in Latin America should prioritize improving institutional quality, encouraging FDI, and promoting local investment while controlling inflation. A comprehensive economic strategy that considers both short- and long-term dynamics is necessary, highlighting the importance of an integrated approach that recognizes their interaction. The study recommends improving the quality of institutions, especially political stability, to attract FDI and encourage domestic investment by promoting a business-friendly environment, guaranteeing financial accessibility, encouraging innovations, promoting regional and global integration, controlling inflation, reducing income inequality, and raising the standard of living.

Analysing the impact of FDI and Institutional Quality on Economic growth in South Asian: Panel ARDL APPROACH

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.

What are the Financial Causes of the Lebanese Economic Crisis and How Can it be Resolved or Avoided in the Future?

Objective: This article explores the financial crisis in Lebanon, focusing on its theoretical background and empirical causes. Its goal is to identify the economic reasons behind the crisis and propose potential solutions.
 
 Method: This research uses a quantitative analysis based on World Bank data related to six key economic factors (Foreign Direct Investment, exports, imports, M3 Money supply, debt service, and inflation) and their connection to GDP per capita, a representation of the financial crisis.
 
 Result: The study reveals a one-way causality between GDP and Foreign Direct Investment, imports, and M3 money supply. Long-term estimates suggest GDP is negatively affected by debt service but positively influenced by Foreign Direct Investment and M3.
 
 Conclusion: To resolve the crisis and avoid future one, the research suggests reducing debt service, encouraging Foreign Direct Investment, and controlling the M3 money supply.

FDI, new development philosophy and China’s high-quality economic development

Numerous studies have extensively investigated the influence of foreign direct investment (FDI) on China's economic development from diverse angles, encompassing technological innovation, industrial structure, environmental pollution, foreign trade, and more. However, there is a scarcity of studies that comprehensively examine the hollistic impact of FDI on China's present model of "high-quality" economic development. Therefore, this study proposes a multi-path mechanism using the partial least-squares structural equation modeling to investigate the direct and indirect effects of them from 2012 to 2021. The findings show that, in general, FDI has played a crucial role in promoting high-quality economic development of China nationally and regionally, such as innovative development, green development, shared development, foreign trade, and economic security. Meanwhile, FDI has had a negative impact on harmonized development. Moreover, FDI has had a negative impact on the foreign trade in the middle region; while, FDI has not promoted high-quality economic development directly in the western region. Therefore, a scientific understanding of the relative importance of different paths can help decision-makers make more valid decisions, such as scientifically guiding FDI into rural areas and the tertiary industry; encouraging FDI firms to export in the middle region, increasing the entry threshold for FDI in the west region.

Examining the Impact of Financial Inclusion on Unemployment in Africa (A Panel Data Analysis)

Financial inclusion improves the accessibility of the poor and other marginalized groups to basic financial services such as savings, investments, credits, and insurance which directly influences income. This study uses panel data analysis and the two-step Generalized Method of Moments (GMM) estimation to empirically assess the relationship between financial inclusion and unemployment in 49 African countries from 2009 to 2020. The results show that financial inclusion has a negative and significant effect on unemployment. This supports the idea that financial inclusion can help African countries in job creation by reducing unemployment thus it suggests an increase in access and use of financial services. The study also finds that the effect of financial inclusion on unemployment is stronger in countries with higher levels of education. This suggests that education is an important factor in the relationship between financial inclusion and unemployment. The results of the study have important policy implications for African countries that want to reach the Sustainable Development Goals (SDGs). Especially, SDG-8 which promotes inclusive and sustained economic growth with full employment and productivity. Governments should introduce policies regarding the usage of mobile money and microfinance in rural areas to enhance financial inclusion. Moreover, sustaining of economic growth through encouraging foreign direct investment and new business creation may help bring down the unemployment rate.

Tax Incentives Granted to Foreign Direct Investments

Since the tax has become an important role and is one of the important means used by the state to direct economic life, and has a direct impact on the economics of the investment project and its returns, this makes the tax an important factor in the investment climate of the host country for investment, which means that the tax can be an obstacle or An incentive to invest in the state, and by (tax incentives granted to foreign direct investment) we rely on tax incentives such as: tax exemptions, carry-over of losses, depreciation system...... and other tax incentives, as a way to attract foreign direct investment to the host country. The importance of this study lies in its handling to demonstrate the effectiveness of tax incentives in encouraging foreign direct investment, and the research plan included three sections. Tax incentives and their effectiveness, with a conclusion in which we mention the most important results of the research and recommendations.

The Geese That Fail To Fly: The AGOA, Textile and Apparel related FDI and implications for technological spillovers in Sub-Saharan Africa

Many countries in Southeast Asia have used technological spillovers from textile and apparel related Foreign Direct Investment (FDI) to industrialise and diversify their economies and integrate their markets to the global economy. In a bid to promote similar industrial activities in sub-Saharan Africa (SSA), the African Growth Opportunity Act (AGOA) was implemented by the American government in 2000 to give countries in SSA tariff free access to American markets on specific products, including textiles and apparels. While few SSA based countries have utilised this opportunity to attract textile and apparel related FDI, create employment and grow exports to the US, even fewer have benefited from spillovers. This study prescribes policy options for SSA countries to attract textile and apparel related FDI and how technological spillovers can be obtained from such activities. The study revealed that an Export Processing Zone and an East/South Asian connection established before the implementation of the AGOA, low cost of inputs and good industrial relations served as magnets for FDI. The study also revealed that the lack of local ownership of textile and apparel firms and mid-level management skills in the SSA countries, the nature of the locating firms and restriction of global value functions to production by the foreign firms were obstacles to FDI spillovers. The study recommends promoting the establishment of local firms and situating them in proximity to foreign firms, skills upgrading of the local labour force especially in upstream value chain functions, promoting backward and forward linkages with foreign firms and encouraging FDI by large multi-national textile and apparel firms rather than small family-owned businesses.

Foreign direct investment and economic complexity in emerging economies

Purpose ― In this study, we investigate the impact of foreign direct investment (FDI) on economic complexity in MINT and BRICS countries. Methodology ― Data on economic complexity from MIT’s Observatory of Economic Complexity and data on FDI and other determinants of economic complexity are sourced from World Development indicators which spanned between 1991 and 2020. The countries are divided into three categories: All countries pooled together, MINT and BRICS countries. We employ panel co-integrating regression. Findings ― Findings based on panel co-integration regression show that foreign direct investment positively impacts economic complexity in all the countries and MINT countries, while its impact is negative in BRICS countries. Originality ― This study adds value to the literature by scrutinizing the nexus between FDI and economic complexity in the context of emerging economies and employs the panel co-integration technique for robust analysis. The study's findings shed light on the need for governments in developing countries to implement appropriate policies encouraging FDI inflows into their respective countries. Contributing to the host country's economic complexity, FDI inflows should be focused on highly technical investment and, most importantly, should be selective to enhance the development of priority sectors. An investment promotion policy may be required to encourage foreign investment in the host country.

Organizational factors, knowledge management and innovation: empirical evidence from medium- and large-scale manufacturing firms in Ethiopia

Organizational factors, knowledge management and innovation: empirical evidence from medium- and large-scale manufacturing firms in Ethiopia

Factors encouraging foreign direct investment (FDI) in the wind and solar energy sector in an emerging country

This study bridges the current research gap by exploring the determinants of foreign direct investment (FDI) in the renewable energy sector in Bangladesh through the OLI and TCE theories. Based on semi-structured interviews with 13 experts, it investigates the determinants of firms' decision-making processes in the UK, Singapore, USA, Denmark, Thailand, China, and South Korea, conducting FDI in the renewable energy sector in Bangladesh. The results show that the institutional environment assumes the highest weight over macroeconomic and natural conditions for attracting FDI in Bangladesh's wind and solar energy projects. In the macro-economy, economic growth and access to local finance are important in attracting FDI. Contrarily, land availability assumes the highest importance for attracting FDI in the natural condition dimension.

Qatar’s Regulations – Striking a Balance between Protectionist Measures and Encouragement of Foreign Direct Investment (FDI) in Qatar

As part of its commitment to fostering economic prosperity and to further fortifying its already robust economy, Qatar has spearheaded several initiatives to attract Foreign Direct Investment (FDI). In doing so, however, Qatar must balance attracting investments from abroad while safeguarding its interests at home. This balance often becomes fragile as the same regulations imposed to offer protection to Qatari businesses (e.g., partial ownership and restricting investment to only a select few industries) often deter interests from abroad and raise barriers to entry. To restore this balance, Qatar has introduced various measures, including tax exemptions, free zones, and the use of commercial agents who are registered with the Ministry of Commerce and Industry (MOCI) to incentivize foreign investors and facilitate and stimulate the growth and diversification of its economy, while allowing the nation to protect its assets at home. This essay will argue that although Qatar’s regulation might discourage some investors, the law finds an appropriate balance between protecting Qatari interests and encouraging FDI.

Trade Openness and Economic Growth in Tanzania 1970-2021, A Search for Causal Relationship.

The purpose of this paper is to analyse the relationship which exist between trade openness and economic growth in Tanzania as well as uncovering the direction of causality between trade openness and economic growth. The study applies the Vector Autoregressive (VAR) Model which is time series model applicable in capturing dynamic interrelationship among variables. Data analyzed were yearly time series data covering the period of 1970 to 2021. The contribution of this paper is on the evidence of whether trade openness affect growth and the direction of causality between trade openness and economic growth. The empirical results shows that trade openness lagged to one period positively and significantly affect economic growth in Tanzania. The growth rate of GDP lagged to two period have a significant positive influence on growth rate of GDP, the gross national savings measured as a percentage of GDP lagged to two period is statistically significant and negatively related to the growth rates of GDP and in addition, the paper found a negative and statistically significant relationship between inflation lagged to two period and growth rate of GDP in Tanzania. As regards to the causality test, the findings reject the null hypothesis of no evidence of Granger causality between trade openness and economic growth however the test could not account for the magnitude of causality. Based of on the findings, the paper recommends measures to foster trade liberalization by pursuing policies that promote trade such as reducing tariffs, streamlining custom procedures, eliminating non-tariff barriers to trade, encouraging Foreign Direct Investment (FDI) and investing in infrastructure development, optimal savings and controlling higher inflation so as to promote economic growth by implementing policies which target inflation reduction and promote economic stabilization.

The Role of Digital Marketing in Encouraging Foreign Direct Investment, Economic Growth and Domestic Consumption in Indonesia

This study investigates internet users, FDI, consumption, and GDP in Indonesia to understand the relationship between digital marketing and direct investment in Indonesia and the control variables for consumption and economic growth.The World Bank has provided this data as a secondary source. For the years 2000 to 2020, the following variables will be analyzed using two different time series models. The country's GDP is used as a measure of economic growth in this study. Internet users (IU) is the dependent variable, and the other three variables, namely foreign direct investment (FDI), consumption (CO), and GDP, each of which is an independent variable from this study because they function as indicators of how the three variables are related in the long term and short for internet users. We found that internet users as an indicator of information technology literacy as well as an indicator of digital marketing in Indonesia have an impact on foreign direct investment, consumption, and GDP. This shows that digital marketing supports economic growth and domestic consumption and attracts investors to make direct investments in Indonesia.

The Complexity and Instability of Policy Conditionality and Transfer: IMF Interventions in the Political Economy of South America.

International Monetary Fund (IMF) interventions have evolved in the last sixty years based on the predominant orthodoxy in world political economy with a focus in recent decades on encouraging liberal market conditions to secure inward investment and capital flows. This has resulted in a dominant model of policy conditions and transfer, but with a debate about the contextual relevance. This paper uses an innovative approach to longitudinal research, called Dynamic Pattern Synthesis, to compare the economic performance of South American nations between 2000-2015. The results from using this method illustrates multifinality in the IMF outcome of encouraging foreign direct investment. A complex configuration of influences on this outcome are evidenced. Complexity theory is used to explain the results, with the continent defined as a complex system that does not respond to simple causal policy mechanisms, but rather displays different patterns of political and economic influence in the context of global market instability. Different foreign direct investment configurations result, and these illustrate that international monetary and policy interventions need to be contextual and cannot make simplistic and universal assumptions about policy problems and their mechanistic solutions.

Endogenous thresholds for the determinants of FDI inflows: evidence from the MENA countries

PurposeThis paper investigates the main drivers of foreign direct investment (FDI) inflows for a balanced panel of 11 Middle East and North Africa (MENA) economies over the 1995–2017 annual period. The author postulates that the impacts of the main pull (growth) and push (global financial conditions, GFC) factors may not be invariant to endogenously estimated thresholds for structural domestic conditions (SDCs) including trade and capital account openness, financial development, human capital (HC) and natural resource endowments.Design/methodology/approachThe author investigates whether the main SDC provide endogenous thresholds for the impacts of basic pull and push factors on FDI inflows for the MENA sample by employing panel fixed effects threshold procedure of Hansen (1999). As a robustness check, the author also present the results of the dynamic panel data two-step system generalized method of moments (GMM) estimation, which explicitly consider the potential endogeneity of SDC along with main pull factor for the evolution of FDI inflows.FindingsGrowth, GFC and SDC are important drivers of FDI inflows. The impacts of SDC tend to be higher in countries with higher financial depth, openness to international trade and finance and lower natural resource and HC endowments. The sensitivities of FDI inflows to GFC are substantially higher in the countries which are more open to international trade and capital flows and higher levels of financial depth. FDI inflows are found to be pro-cyclical and this pro-cyclicality tends to be much higher for the episodes exceeding the SDC thresholds.Practical implicationsImproving SDC including higher openness to international trade and finance and financial development may be effective in encouraging FDI inflows. The findings support an argument that, better SDC are crucially important not only for attracting FDI but also achieving the growth benefits of FDI inflows. Therefore, improving SDC appears to be an important growth-oriented policy agenda for emerging market and developing economies (EMDEs) including MENA.Originality/valueThe impacts of the main push and pull factors on FDI (and capital) inflows may be nonlinear. The literature often tackles the nonlinearity issue either by some interaction specifications or imposing exogenous thresholds. The literature, however, is yet to comprehensively investigate whether the main SDC provide endogenous thresholds for the impacts of basic pull and push factors. The author aims to contribute to the literature by estimating endogenous SDC threshold levels for the impacts of the main determinants of FDI flows for MENA.