FDI Inflows Research Articles

The Effects of FDI on School Enrollment in Developing Countries: New Evidence

ABSTRACTUsing data on 118 developing countries over the period 1973 to 2019, this paper finds that FDI stocks have positive effects on school enrollment rates. The magnitude of the effects is modest. They are larger at the tertiary than at the secondary level. At both levels of education, females benefit more than males. The paper also explores the channels through which FDI might affect enrollment rates and finds that a well‐developed financial sector enhances the positive effects of FDI on schooling. In contrast to almost the entire literature, the paper uses data on stocks rather than inflows of FDI. FDI stocks are more likely to affect schooling decisions because they are much larger and less volatile than FDI inflows. Indeed, the paper finds that FDI inflows do not affect enrollment rates. Throughout, it accounts for endogeneity of FDI and controls for all major determinants of schooling.

The Influence of Domestic Bank Credit and FDI Inflows on Renewable Energy Productivity: An Analysis of Developing Asian Economies

The Influence of Domestic Bank Credit and FDI Inflows on Renewable Energy Productivity: An Analysis of Developing Asian Economies

Impact of Oil Price, CO2 Emissons, Inflation and Economic Growth on FDI Inflow: Case of Kazakhstan

Impact of Oil Price, CO2 Emissons, Inflation and Economic Growth on FDI Inflow: Case of Kazakhstan

Long-Run Effects of Trade Openness on Foreign Direct Investment: Evidence from Developed and Developing Countries

The purpose of this paper is to examine the long-run effects of trade openness on FDI for 124 developed and developing countries over the period 1996-2021. The econometric specification adopted is the ARDL model in Panel. The main results estimate that, for developed and developing countries, trade openness has a positive and significant long-run effect on FDI inflows; the long-run effect is more important for developing countries (8-13 times that of developed countries). For developing countries, the long-run effect of trade openness on FDI is greater than that of infrastructure quality (from 6.6 to 10 times). For all samples (whole, developed and developing countries), the short-run effects are insignificant. The results estimate, also, a bidirectional causality between trade openness and FDI for whole sample and for developed countries. In the light of these results, it is recommended for the government to make several strategies to attract trade: Reduce barriers for products and services, more transparency, reduce bureaucracy, create a good politic and economic environment, develop institutions, improve infrastructure and specially communication and technology.

Carbon dynamics: A holistic analysis of FDI, trade liberalization, urbanization, economic growth, and effects on CO2 emissions in South Asia

In recent years, South Asian nations have experienced robust economic growth, prompting concerns among policymakers about the sustainability of this growth due to rising pollution emissions. This study conducts an objective assessment of the impact of key variables, such as trade liberalization, economic growth, foreign direct investment inflows, and urbanization, on environmental outcomes across selected economies of South Asia from 1990 to 2022. To describe cross-sectional dependencies in the dataset, panel cointegration techniques are employed alongside cross-sectionally augmented autoregressive distributed lag (CS-ARDL) models. For added robustness, dynamic ordinary least squares (DOLS) and fully modified ordinary least squares (FMOLS) techniques are utilized to investigate the long-term coalition among the variables. The study integrates first- and second-generation panel methods to improve the depth and reliability of the analysis by addressing methodological limitations. The pragmatic results reveal that trade liberalization, FDI inflows, economic growth, and urbanization increase CO2 emissions by 0.392%, 0.354%, 0.275%, and 0.429%, respectively. Dumitrescu and Hurlin (D–H) causality tests show a unidirectional causal link from trade liberalization to environmental degradation. Additionally, a bidirectional causal link is observed between environmental deterioration and both FDI inflows and urbanization in South Asian countries. To mitigate environmental impact, these nations should evaluate foreign investment conditions and enhance technology transfer from foreign enterprises. Furthermore, implementing trade-related policies to reduce CO2 emissions is imperative.

How population ageing affects FDI flows: a tale of South Korea

The neoclassical theory predicts that population ageing would reduce net FDI inflows, which would nullify government efforts to attract FDI. There is a complete paucity of literature on the dynamic relation between population ageing and FDI flows for South Korea. This is a distinctive attempt to test the hypothesis that population ageing reduces net FDI flows (% of GDP) in South Korea. The results of the ARDL bounds testing approach to cointegration analysis under structural breaks provide clear evidence of non-linearity between population ageing and net FDI flows (% of GDP). Support for the neoclassical hypothesis is established only in the short-run.

The moderating effects of environmental and regulatory quality on financial development to promote sustainable FDI inflows in Canada

Stimulating sustainable FDI through the connection of financial development and its moderating relationships with environmental quality and regulatory quality emerges as a crucial agenda nowadays. This study investigates into this relationship using quarterly data from 1990Q1 to 2022Q4 for Canada; employing ARDL bound tests, Granger Causality, and FM-OLS econometric models. Foreign direct investment is the dependent variable of this study. The findings confirm significant long-run relationships among financial development, stock market development, and the moderating effects of environmental and regulatory quality on FDI inflows in the Canadian economy. Conversely, in the short run, financial development, stock market development, and economic growth exhibit bidirectional causal links with FDI, while environmental quality, regulatory quality, and trade openness demonstrate unidirectional causal links with FDI. The error correction mechanism indicates that all variables quickly return to equilibrium except trade openness. Robustness checks further confirm that all the variables have fully modified co-integrating relationship with FDI inflows including the moderating effects of environmental and regulatory quality which is the innovation in the FDI-Growth existing literature. Thus, policymakers are urged to prioritize environmental quality and regulatory quality, alongside other significant explanatory variables identified in this study to promote sustainable FDI inflows.

Urbanization as a catalyst for structural transformation in developing countries: The mediating impact of foreign direct investment

This article analyzes the link between urbanization and the process of structural transformation (ST) in developing countries, taking into account the mediating role that FDI can play. We use secondary data from 2000 to 2023 to determine if FDI positively or negatively influences the ST process in these countries, thereby, altering urbanization patterns. By estimating the Generalized Method of Moments (GMM), the study explores the relationship between urbanization, the ST process, and the mediating role played by FDI. In addition, it takes into account control variables such as gross fixed capital formation (GFCF), gross domestic product per capita (GDPPC), and diversification of production structure (DPS) to analyze their effect on urbanization and, more specifically, on the ST process. The econometric results showed a negative correlation between FDI flows and urbanization, demonstrating that FDI could hinder the success of the ST process in developing countries. On the contrary, econometric results showed that the control variables, GFCF, GDPPC, and DPS, positively influence urbanization in developing countries, indicating that these variables are more conducive to a successful ST process than FDI. Based on the econometric results, policymakers in developing countries are called upon to strengthen urbanization in these countries, by encouraging local investment and the diversification and sophistication of production and export structures, rather than relying solely on FDI. Over the period studied, FDI has not contributed as expected to advancing the urbanization process, a crucial element in the ST process in developing countries.

Navigating energy policy uncertainty: Effects on fossil fuel and renewable energy consumption in G7 economies

ABSTRACT In an era where energy transitions are critical for addressing climate change and ensuring economic stability, energy policy uncertainty (EGU) emerges as a crucial factor influencing energy consumption patterns. This study investigates the complex relationship between EGU and various forms of energy consumption, including fossil fuels, renewables, and total energy use across G7 countries from 1996 to 2022. Utilizing FMOLS (fully modified OLS) and DOLS (dynamic ordinary OLS) models, long-term relationships among variables were established and robustness was checked by employing ARDL (autoregressive distributed lag) model. Our findings reveal that EGU significantly hampers fossil fuel consumption, impedes renewable energy uptake, and affects total energy consumption adversely. These effects underscore the broader implications of policy uncertainty on energy strategies. Specifically, the robustness checks confirm that these relationships hold across different model specifications and periods. In addition, analysis reveals the dynamic impact of control variables including FDI inflow, institutional quality, banking development, and inflation rates on specific energy consumptions. Policy implications are profound: governments must prioritize the stabilization of energy policies to enhance investor confidence and facilitate the transition to sustainable energy sources. Additionally, targeted interventions to mitigate uncertainty can promote the development of renewable energy infrastructure and support more predictable energy markets. This study provides new insights into the impacts of policy uncertainty on energy consumption and offers a foundation for strategic policy formulation aimed at achieving a balanced and sustainable energy future.

Can diplomatic activities promote foreign direct investment? Empirical evidence from China

PurposeThis study investigates the impact of Chinese senior leaders’ diplomatic visits on outward and inward foreign direct investment (OFDI and IFDI, respectively). Additionally, it aims to discern the differential impacts of diplomatic visits on FDI across different Chinese administrations.Design/methodology/approachWe utilize data about the diplomatic visits of Chinese senior leaders to 146 host countries. The dataset was divided into two leadership eras: the tenure of President Hu Jintao and Prime Minister Wen Jiabao from 2003 to 2012 and the period from 2013 to 2021 under President Xi Jinping and Prime Minister Li Keqiang. We employ generalized least squares, lagged effect, and two-stage least squares methods to estimate the econometric model. This analytical framework assesses the influence of high-level diplomatic visits on FDI flows, addressing potential time-serial and endogeneity concerns.FindingsThe findings reveal that senior leaders’ diplomatic visits significantly boost Chinese OFDI. The effect on IFDI in China is not statistically significant. The administrations of Hu and Xi played positive roles in promoting OFDI. However, only Hu’s administration showed a statistically significant positive relationship with IFDI. The result suggests a potential increase in IFDI between China and host countries within two to three years following diplomatic visits.Originality/valueThis study contributes to the understanding of how Chinese senior leaders’ diplomatic activities affect foreign direct investment. It provides a deeper understanding of Chinese senior leaders’ diplomatic efforts to compensate for investment across two administration periods. It offers insights into the potential influence of diplomatic efforts on FDI, enriching the understanding of diplomacy’s role in international business contexts.

Causality Between FDI Inflow, Worker Remittance Outflow, and Indonesia's Economic Growth

Causality Between FDI Inflow, Worker Remittance Outflow, and Indonesia's Economic Growth

Do Foreign Direct Investments Promote Employment in GCC Countries?

The impact of foreign direct investments on the labor market has attracted a lot of attention on behalf of academics. This this study contributes to the literature by analyzing the short-run and long-run impacts of FDI on employment in GCC countries during the period 1990 and 2019. To do that, we used the PMG-ARDL model, which allows accounting for cross-section dependence. The analysis shows that GDP, capital stock, international trade and FDI have a positive effect on employment in the long-run. More specifically, an increase in FDI flows by 1% induces a rise in employment by 0.194% in the long-run. The results of the empirical analysis also show that FDI has no significant effects on employment in the short-run. In addition, GDP positively influences employment, whereas international trade has a detrimental effect. Finally, the short-run country-specific analysis suggests that FDI flows increase employment in Bahrain and Qatar in the short-run while it reduces it in Kuwait, Oman, Saudi Arabia, and the United Arab Emirates. Foreign Direct Investments

THE NEXUS OF INDUCING DEVELOPMENT: MEASURE PATH DISCOURSES IN INDONESIA’S DYNAMIC LANDSCAPE

The research objective underscores the importance of human capital, innovation, and research in fostering sustainable economic growth, with a focus on principal variables such as human capital development (measured by HDI), innovation and competitiveness (driven by FDI inflows), R&D expenditure, and employment dynamics. The research results reveals that FDI, R&D spending, and employment significantly impact TFP growth, with FDI inflows identified as a push driver of TFP growth by enhancing innovation and competitiveness. This research applies the research methodology ARDL model to delve into the factors that influence Total Factor Productivity (TFP), drawing on Romer’s theory of endogenous growth. The research results also highlight the role of R&D expenditure in boosting TFP, emphasizing the need for a supportive environment for research and innovation. The labor force is also found to contribute significantly to TFP. The research further explores the interaction between the labor force and R&D, suggesting the need for policies that support both workforce development and innovation for sustained prosperity. The study also incorporates the concept of employment elasticity with respect to growth as a measure of inclusive development. It concludes by advising stakeholders to prioritize the promotion of FDI inflows, entice R&D spending, and treatise labor force issues to enhance TFP growth and ensure long-term economic prosperity. This underscores the importance of stakeholders’ cooperation in leveraging investments for long-term economic prosperity.

Effect of geopolitical risk on energy consumption policy: New empirical evidence from BRICS

This study investigates the impact of geopolitical risk (GPR) on energy consumption. For empirical analysis, we utilize the dataset of BRICS nations spanning 25 years from 1998 to 2022. We employ three econometric models, namely fully modified ordinary least squares (FMOLS), dynamic ordinary least squares (DOLS), and autoregressive distributed lag (ARDL), to analyze the relationships between GPR and energy consumption. Our empirical findings reveal several significant insights. Firstly, we observe a substantial negative influence of GPR on both fossil fuel energy consumption (FEC) and total energy consumption (TEC). This suggests that higher levels of GPR are associated with reduced utilization of fossil fuels and overall energy consumption within the BRICS countries. Conversely, we identify a significant positive effect of GPR on renewable energy consumption (REC). This implies that, as GPR rises, there is a corresponding increase in the adoption and usage of renewable energy sources. Furthermore, our analysis uncovers the presence of asymmetric effects pertaining to other key determinants of energy consumption, including FDI inflow, economic growth, banking sector development, and inflation rate. This study offers fresh empirical evidence on the intricate interplay between GPR and energy consumption in BRICS nations, shedding light on the significant impacts of GPR and the nuanced effects of various economic factors. These findings have important implications for policymakers and stakeholders seeking to navigate energy policy decisions in a geopolitically dynamic world.

Foreign business presence and local entrepreneurship development: evidence from China

Does the entry of foreign-invested enterprises (FIEs) enhance host economies’ entrepreneurship? Empirical findings in the literature are far from conclusive because of diverse local conditions. This article investigates the effect of FIEs on local private business creation in China. Using a panel dataset of 31 provinces from 1992 to 2019 and two-way fixed effect models, this study finds that the entry of foreign-invested firms significantly enhances China’s provincial-level entrepreneurship. The effect is robust to various sets of control variables and different measurements of FIEs (either FDI stock or flow). The findings also suggest that the effect of FIEs on local entrepreneurship is lower in the second subperiod (2001–2019) than in the first subperiod (1992–2001). Moreover, the improved legal status of private businesses and better protection of private property, as amended in the Constitution, decrease the role of FIEs in enhancing local entrepreneurship.

Economic growth, foreign direct investment and corruption nexus in sub-Saharan African countries: moderation model

This study aligns with Sustainable Development Goal 8 which borders on “economic growth by ensuring FDI inflows continue to increase so as to spur sustained economic growth”. It contributes to the economic growth literature by evaluating the role of FDI inflows and corruption on economic growth. The Sub-Saharan African region has witnessed an increase in FDI inflows for the last three decades. However, economic growth has been reducing. For example, the region witnessed a contraction in economic growth to 2.7 percent in 2022 down from 4.4 percent of 2021. The literature indicates that corruption can impede FDI inflows from translating to high economic growth. Many studies have examined the role of FDI inflows in economic growth but have not studied the moderating effect of corruption thus creating a gap for this study. To achieve the objective, the study uses the Fixed Effects Panel data approach on unbalanced panel data for 46 sub-Saharan African countries from 1998 to 2021 to interrogate the nexus. The results revealed a positive relationship between FDI inflows and economic growth. The findings align to the endogenous growth model that explains the link between foreign direct investment and economic growth. However, corruption was found to reduce the effectiveness of FDI inflows in realizing economic growth. The study therefore recommendsthat the governments of the Sub-Saharan Africa countries need to address corruption so as to achieve the desired economic growth. They should implement measures focusing on improving institutional quality to control corruption. In addition, the policy makers should relook at anti-corruption initiatives aimed at reducing poor governance. For instance, financing anti-corruption agencies and legislating their independence to ensure corruption is reduced.

Does the Source of FDI Matter? The Case of Tax Havens

Abstract This paper estimates the benefits of FDI for firm performance, differentiating source countries between tax havens and non–tax havens. Using longitudinal data on more than 300,000 initially domestic firms in Ukraine between 1999 and 2013 and employing propensity score matching and panel data methods, this study finds that firms acquired by non–tax haven foreign investors experience substantial increases in employment, productivity, exports, and wages, but the gains are much lower and shorter-lived for firms receiving FDI from tax havens. These findings, based on econometric analysis of nearly the universe of Ukrainian businesses, are consistent with macroeconomic studies and anecdotal evidence that much of the tax-haven FDI in Ukraine actually represents domestic ownership channeled through offshore companies. This “round-trip FDI” results in negligible effects on firm performance and, at a macro level, it overstates the amount of genuine FDI flows into Ukraine.

Exploring the Potential for Renewable Energy Consumption in Reducing Environmental Degradation in Somalia

Somalia has a relatively small amount of forested land, covering only about 10.5% of the nation’s total land area. The reason for this is that much of the country’s tropical forests, which were originally located along the Shabelle and Jubba rivers reclaimed agricultural land. This study examines the relationship between environmental degradation and various variables, including renewable energy consumption, GDP, FDI inflow, and population. The study employed ARDL model to analyze the econometric relationship between various latent variables. This study found that that in Somalia, renewable energy consumption, GDP and FDI have both short-term and long-term negative and statistically significant effects on environmental degradation. However, FDI exhibits a positive and significant relationship with environmental degradation in both the short and long run. The findings of the study suggest that there is a positive correlation between renewable energy consumption and economic growth, and a negative correlation between renewable energy consumption and environmental degradation. The study also suggests that FDI may play a role in promoting renewable energy consumption and economic growth. The limitation of this study is that the study does not control for all of the potential factors that could influence the relationship between the variables. For example, the study does not control for the level of corruption in Somalia, which could potentially affect both economic growth and environmental degradation. Future research should address the limitations of this study by controlling for all of the potential factors that could influence the relationship between the variables.

The Economic Effects of Renewable Energy Investments: Evidence from Firm-Level Data

Companies’ Investments in Renewable Energy (CIRE) offer well-known environmental and social benefits, but their economic impact remains unclear, particularly at the microeconomic level. Using the Generalized Method of Moments approach, our empirical study of 93 companies in Saudi Arabia from 2000 to 2023 assessed CIRE’ effects on GDP growth, FDI inflows, employment, and exports. Our findings indicate that increased investments in renewable energy have significantly boosted GDP growth, attracted higher FDI inflows, and generated new employment opportunities, suggesting a favorable investment environment. However, the potential for export growth within this sector appears limited. Robustness checks and instrumental variables confirm these findings. The study provides policy recommendations for maximizing economic benefits from CIRE in Saudi Arabia.

Strategic Process of Mergers and Acquisitions Market Plans

Merger and acquisition activity in India is booming, the percentage of cross-border transactionshas risen significantly. Flow of FDI’s is greatly encouraged with enactment of new laws and tweaking ofexisting policies. In the IT sector phenomenal growth of cross-border transactions is recorded. Foreignonline firms are focusing on companies in the digital space to gain access to skilled talent and aburgeoning market. However there are factors that need to be ascertained in order to fine-tune theecosystem to be more attractive to the investor community. What emerges from these facts is that thecountry’s regulatory regime has to be thoroughly reviewed in order to devise measures to fine-tune itoptimally for the growth and prosperity of the country’s IT sector. The two biggest obstacles in the wayof completing a merger or an amalgamation remains the often long drawn procedure required for thesanction of a scheme of arrangement and achieving a culture synergy between the combining entities.