Foreign Direct Investment Inflows Research Articles

Austrian FDI in Asian economies: Does knowledge capital matter?

PurposeWhile Austrian foreign direct investment (FDI) in Asian economies experiences a rising trend, the following question arises: Why does Austria invest more in certain economies over others? This study intends to assess the factors that drive Austrian investment in Asian economies.Design/methodology/approachBased on the ownership, location and internalization framework and the knowledge capital approach, this study hypothesizes that knowledge capital significantly attracts FDI from Austria. Meanwhile, this study applies the panel-corrected standard error method to analyze data for 11 Asian economies from 1990 to 2022.FindingsAfter considering endogeneity, the results show a positive and significant correlation between expenditure in research and development per gross domestic product (GDP) in the host economies and FDI inflow from Austria. In addition, the study reveals that factors such as market size, trade openness and natural resources in the host economies significantly influence Austria’s FDI, which indicates that Austrian investors fall into the three main FDI typologies: market-seeking, resources-seeking and efficiency-seeking.Originality/valueThis study fills the literature gap by becoming the first to analyze the determinants of Austrian FDI in Asian economies, thus enriching our understanding of Austria’s global investment pattern.

Political Turbulence and its Impact on Foreign Direct Investment Inflows in some selected African countries

This work examined the political turbulence and its impact on Foreign Direct Investment inflow on some selected African countries; Nigeria, Ghana, Kenya and South Africa. The aim is to determine how the political climate in Nigeria, Ghana, Kenya and South Africa affects the inflow of foreign direct investment. The modified Cobb Douglass model was the theoretical underpinning of the study since growth in FDI is likened to output and the factors that lead to growth are the investment climate variables. Using the panel ARDL model analysis, the following findings were made: Political investment climate variable (PSI) had significant positive effect on the inflow of foreign direct investment in Nigeria, Ghana, Kenya and South Africa. The result showed that Political investment climate variables (political stability and corruption index) exerted significant negative effects on the inflow of foreign direct investment into Nigeria, Ghana, Kenya and South Africa. It was recommended that; Efforts should be made by the governments of Nigeria, Ghana, Kenya and South Africa to enhance their economic fortunes by strengthening their economy through prioritizing political stability and addressing underlying causes of political unrest, corruption, weak institution and political social inequality. As well as engaging in massive production for exports which will boost economic growth and attract more foreign direct investment.

FDI Impact on China's Sectoral Performance: A Panel Cointegration and Causality Analysis

This study provides a thorough examine the influence of FDI inflows and outflows on China's economic growth across three major sectors. Using panel data from 1997 to 2022 in China, it utilizes tests for unit roots and cointegration to investigate the enduring connection between FDI and economic growth. The research results validate the existence of a long-standing cointegration relationship between FDI and economic expansion. Additionally, this research employs the Granger causality test to ascertain the direction of causality between FDI and economic growth. The study reveals a two-way causality between foreign direct investment (FDI) inflows and overall economic growth, which supports the hypothesis of feedback causality. Additionally, there exists a one-way causality originating from FDI inflows across various sectors, suggesting that growth attracts FDI. The government should encourage foreign investment to enhance the industrial structure and boost economic growth.

The Impact of FDI On Economic Growth: Evidence from Different Sectors and Economic Conditions

The objective of this study is to examine how the foreign direct investment (FDI) influence China's economic expansion and evaluate its diverse role in various sectors and economic circumstances. This study uses multiple regression panel data Fixed Effects models with the robust standard errors to investigate further the potential significant impacts of both FDI inflows and outflows on economic development in China. The study employs panel data from 29 provinces in China, spanning the period from 2003 to 2021 for its analysis. This study found that FDI inflow contribute significantly and positively on growth in three different sectors, while outflow of FDI shows insignificant but positively correlated with growth. The results of coefficients reveal that FDI inflow in secondary sector has the strongest impact on growth, followed by primary and tertiary sector. Additionally, by including crisis in the models, the positive and significant impact of FDI inflow remain unchanged with the domestic investment became significantly and positively affect the economic growth. Hence, this study recommends the policy makers to promote and encourage more foreign investors to invest in China by giving some incentives such as reduction in capital gains taxes and more subsidies to the domestic firms especially in secondary sector.

Foreign direct investment inflow and the economic growth nexus in Tanzania

PurposeA shortage of investment capital is one of the main issues facing most developing economies, including Tanzania. Policymakers, economists, and governments in these countries have been debating how to overcome this obstacle and improve economic growth through foreign direct investments (FDI). The present study endeavors to examine the relationship between FDI and economic growth in Tanzania during the period of 1991–2021. The analysis considers financial development, capital formation, and labor force involvement as intermediation variables.Design/methodology/approachThe study uses time series data to estimate an autoregressive distributed lag (ARDL) model, as well as Granger causality tests to investigate the relationship between the variables under study.FindingsThe findings show a long-run co-integration between the studied variables. However, only FDI and labor input have a significant impact on gross domestic product (GDP) growth in both the short and long run. Bidirectional causality exists between FDI, labor input, and GDP growth in the short and long run.Practical implicationsThis study contributes to an understanding of the relationship between inbound FDI, labor input, and economic growth in Tanzania, as well as updating the government to improve its financial system to gain more from FDI inflows and hence boost growth-enhancing effects.Originality/valueThis study provides insight into the relationship between inbound FDI and economic growth in Tanzania, which is a critical policy concern in developing economies. Extant studies’ results remain controversial, and this is the first study in Tanzania to investigate the FDI-growth nexus, by considering financial development, capital formation, and labor input simultaneously.

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.

Foreign Direct Investment and Its Effect on Agricultural Productivity Kenya

Kenya has historically been one of Africa's top destinations for foreign direct investment. Foreign direct investment is critical for Kenya's agricultural sector, offering capital, technology transfer, and skill development that enhance productivity and economic growth. Despite agriculture being a primary economic driver, challenges such as limited capital, outdated farming techniques, and insufficient infrastructure continue to hinder growth. The research explores the contribution of foreign direct investment on agricultural productivity in Kenya as well as to assess the effect of foreign direct investment on the productivity levels of small-scale and large-scale farmers in Kenya for a period 1993 to 2022. Neoclassical growth theory, Endogenous theory were key in guiding the study. This study adapted the causal research design employing time series data from World Bank spanning from years 1993 to 2022. Data was analyzed the data both descriptively and by inferential statistics. The findings of correlational analysis revealed a moderate positive relationships (r= 0.3213) between Foreign direct investment and agricultural productivity. Multiple regression analysis confirmed the significant positive effect of foreign direct investment on agricultural productivity with a coefficient of 0.3661 and p value 0.0014<0.05. This signifies that, in the short term, a 1% increase in foreign direct investment results in a 36.61% rise in the growth of Agricultural productivity, assuming all other variables remain constant. The findings implied that foreign direct investment inflow has the ability to create employment, technological development and improve access to international markets playing a pivotal role in accelerating the agricultural productivity. The Kenyan government should have more effective foreign direct investment strategies to facilitate technology transfer agreements between foreign investors and local agricultural enterprises, additionally, the government should pursue macroeconomic policies that attract foreign direct investment by providing an investor-friendly environment.

Indicators of Attracting Foreign Direct Investment in Developing Countries: Evidence from Vietnam

In today’s global economy, whether in advanced or emerging markets, the importance of being open to trade and investment is widely acknowledged as a key driver of economic growth. This economic openness is primarily demonstrated through the unrestricted exchange of goods and services as well as the free movement of international capital. While previous studies have investigated the effects of export-driven, import-driven, and capital-driven growth strategies, this research focuses on analyzing the impact of each indicator of the Provincial Competitiveness Index (PCI) on attracting foreign direct investment (FDI). By utilizing a panel data model covering 63 provinces and cities in Vietnam from 2018 to 2022, this study explores the correlation between PCI, FDI, and economic expansion. Findings suggest that export-oriented growth policies can be more effective in fostering the development of Asian emerging economies than FDI-centric approaches. Nonetheless, FDI continues to be crucial for technology transfer, capital accumulation, and knowledge exchange in management. Regions with advanced economies are more appealing to FDI, while provinces with distinctive industrial strengths also attract foreign investment. To further boost FDI inflows, it is advised that the government streamline market entry procedures, reduce administrative and tax burdens, increase transparency, and promote fair competition. These measures are anticipated to improve the investment climate and enhance competitiveness on the global stage.

Sovereign ESG and Foreign Direct Investment in the GCC: The Amplifying Role of Trade Openness in Economic Diversification

This study examines the relationship between Sovereign Environmental, Social, and Governance (SESG) initiatives and foreign direct investment (FDI) within the context of the Gulf Cooperation Council (GCC) countries from 2000 to 2022. The research explores how national ESG performance influences the attractiveness of these countries to foreign investors, with a particular focus on the moderating role of trade openness. Using a comprehensive panel data analysis, the study finds that strong SESG frameworks are positively correlated with higher FDI inflows, with trade openness amplifying the positive impact of SESG. Additionally, the use of Instrumental Variables (IV) estimation addresses endogeneity concerns, further confirming the robustness of the results. Moreover, the analysis reveals that trade openness amplifies the positive impact of SESG on FDI, suggesting that GCC countries with liberal trade policies and robust ESG practices are more successful in attracting sustainable and responsible investments. These findings contribute to the growing body of literature on ESG and FDI, offering valuable insights for policymakers seeking to enhance economic growth through strategic investments in sustainability and governance. The findings offer valuable insights for policymakers in aligning SESG frameworks with global ESG standards and leveraging global liquidity conditions to enhance FDI inflows, particularly in light of ongoing economic diversification efforts in the GCC.

Uncovering Economic Growth Dynamics: The Role of Idiosyncratic Risk

Research Originality: This study provides a new perspective on the dynamics between foreign direct investment (FDI), idiosyncratic risk, and economic growth in ASEAN countries using structural equation modeling (SEM). It contributes to the literature by highlighting the nuanced role of idiosyncratic risk in shaping regional economic outcomes.Research Objectives: The study aims to examine the direct and indirect impacts of FDI inflows, idiosyncratic risk, and sectoral variables (manufacturing, agriculture, and services) on economic growth in ASEAN from 2013 to 2023.Research Methods: The study uses data from the ASEAN Statistical Database and applies SEM to estimate the relationships between these variables.Empirical Result: The main findings indicate that FDI inflows have minimal impact on idiosyncratic risk, as evidenced by regression coefficients below 0.001 for inward and intra-ASEAN FDI. In contrast, idiosyncratic risk significantly impacts economic growth. The results also reveal that sectoral variables such as manufacturing, agriculture, and services exhibit weaker associations with economic growth.Implications: This information suggests that policymakers should focus on exploiting idiosyncratic risk to improve economic development, while acknowledging the limited direct impact of FDI on risk management, thereby debating more appropriate strategies to promote sustainable economic growthJEL Classification: A11, E60, H11

Russian-Ukraine War and its Impact on the European Economy

This study examines the impact of the Russian-Ukraine war on the economy of Europe, concentrating on trade disruptions, energy security, foreign direct investment (FDI) flows, and the socioeconomic ramifications of the war[1]induced refugee crisis. This study employs the descriptive research design, qualitative research method and a secondary source of data collection. The research uncovers the problems and possibilities coming from the war, as well as the larger implications for economic growth, development, and stability in the area. The results reveal severe interruptions to commercial links between European nations, especially Russia, and Ukraine, with key sectors such as energy, manufacturing, and agriculture facing considerable disruptions. Energy security emerges as a significant worry, spurring attempts to diversify energy sources and lessen dependence on Russian supply. Meanwhile, the war has resulted in a drop in FDI inflows to Russia and Ukraine, aggravating economic concerns in both nations and hurting their growth prospects. Furthermore, the research shows the burden on social welfare systems in European nations hosting migrants, since the inflow of refugees exerts great demands on resources and capabilities. Investments in housing, health care, education, and social welfare are vital for satisfying the different needs of displaced people and facilitating their long-term integration into society. However, issues connected to social cohesiveness, community connections, and political dynamics within host nations also occur. The study recommends diplomatic resolution of the dispute through peaceful discussions, involving European Union (EU) member states- Russia, Ukraine, and other parties. This could involve neutral mediation, de-escalating initiatives, and confidence-building measures.

Net‐Zero Transition Pathways in Belt and Road Economies: Insights From Threshold Effects and Heterogeneous Analysis

ABSTRACTGiven the pressing need for economies to mitigate climate change and champion carbon neutrality, this study investigates the threshold effects of financial development and foreign direct investment (FDI) on carbon dioxide (CO₂) emissions in Sub‐Saharan Africa (SSA) within the Belt and Road Initiative (BRI) bloc, taking into account the moderating role of the regulatory environment. Drawing on the environmental Kuznets curve and the pollution haven hypothesis, the study utilizes the dynamic generalized method of moments (GMM) modeling, proposed by Arellano and Bover, to analyze panel data from 37 SSA countries spanning 1990–2022. The findings reveal that financial development in the banking, financial, and private sectors, along with FDI outflows, is associated with a reduction in CO₂ emissions. Conversely, FDI inflows are linked to increased CO₂ emissions. A curvilinear relationship is observed, where initial increases in financial development and FDI correlate with higher emissions, which decline beyond a certain threshold. Stronger regulations enhance the positive impact of financial development on reducing CO₂ emissions. Finally, the findings show a significant heterogeneous effect across the SSA regional blocs. These findings underscore the critical need for implementing stringent environmental regulations and promoting sustainable financial practices to mitigate negative environmental impact. This research provides both theoretical and practical insights into fostering a carbon neutrality agenda and advancing Sustainable Development Goal 13.

Foreign direct investment in Singapore: the case of Pharmaceutical & Biological Products sector

Motivation: The motivation for the study was the fact that despite of being a small country Singapore is one of the largest recipients of foreign direct investment (FDI) in the world. It is also the location of the largest multinational enterprises (MNEs) in the Pharmaceutical & Biological Products sector.Aim: The objective of this article is to identify and assess the FDI scale and structure in Singapore in the years 1990–2022, with a focus on the Pharmaceuticals & Biological Products sector, and to show Singapore as an FDI location against the background of Asia and the world.Materials and methods: The article uses secondary data from the World Investment Report published annually by the United Nations Conference on Trade and Development (UNCTAD) and statistics published by the Department of Statistics Singapore (DOS). The study uses statistical and economic analysis, comparison, analogies, synthesis, and the method of measuring and aggregating data.Results: Singapore is one of the largest recipients of FDI not only in Asia, but also in the world. In 2022, Singapore’s share of FDI inflows to Asia was 21.3%, and its share of global FDI inflows was 10.9%. From 1998 to 2007, FDI stock in the Pharmaceuticals & Biological Products sector accounted for a significant share of total FDI stock in Singapore and the manufacturing industry, reaching over 40% in 2007. Since then, the share of the analyzed sector has been seeing a downfall. At the end of 2022, the share of FDI in analyzed sector was 4.9% of the FDI in the manufacturing industry and 0.6% of the total FDI.

Institutions as a determinant of Foreign Direct Investment inflows into the Southern African Development Community

Foreign Direct Investment (FDI) in Southern Africa has been one of the drivers of infrastructure development and economic growth especially in sectors such as mining, agriculture, energy, information, and communications technology (ICT). However, although important economic and institutional reforms have been undertaken by some SADC countries to encourage the inflow of FDI--particularly in low-income countries in the region, the flow of FDI to SADC member states remains low and concentrated in few countries and sectors and is still largely attracted to natural resources sectors. This paper examines the institutions and infrastructure development in the promotion of FDI inflows into the SADC region. Institutions and infrastructure development typically have a positive effect on FDI inflows through their impact on the investment climate. The paper uses panel data econometric analysis with OLS and PCSE to ascertain the impact of governance institutions on FDI inflows into the region. The results obtained reveal that the quality of governance, together with the level of economic development, market size, and openness to trade with the external world play a critical role in attracting FDI into SADC countries. There is however a need to control rampant corruption and reduce the political instability common in some of the countries of the region.

Institutional quality as a catalyst for structural transformation in African countries: What role does foreign direct investment play?

The socio-economic development of African countries is strongly influenced by the impact of foreign direct investment (FDI) flows and the quality of these countries' institutions. This paper examines the role played by the quality of these countries' institutions as a pillar in the process of structural transformation (ST) in African countries considering the relationship between FDI and institutional quality. This led to the completion of a thorough econometric analysis that estimated two Panel Auto Regressive Distributed Lag (ARDL) models and concentrated on the complex relationships between the study's variables. The econometric results obtained showed a negative and significant effect of FDI on the quality of institutions in the long term as reflected by two dependent variables: the degree of freedom from corruption and the degree of freedom of ownership. Thus, the results show the major constraints African countries faced in terms of property rights, corruption and the implementation of good governance practices, underscoring the need for radical institutional reform to foster these crucial dimensions of socio-economic functioning. In addition, the study’s result demonstrated the crucial role that institutional quality within the African continent can play in the success of its ST process. Indeed, the positive impact of institutional quality on FDI attractiveness and the implementation of effective development policies could foster an environment conducive to achieve inclusive growth. Finally, the results of the study can help decision-makers define the policies essential to the success of the ST process in African countries.

Macroeconomic Determinants of Foreign Direct Investment Inflow in Laos

This study aims to study macroeconomic determinants of foreign direct investment inflow in Lao PDR, which includes macroeconomic variables such as gross domestic product growth rate (GDPGRO), government investment spending (GI), exchange rate (EXR), inflation rate (IFR), interest rate (IR), openness trade (OPTR) and money supply (MS) from 2001-2022. This results found that: The foreign direct investment inflow has 12,298.57 million US dollars on an average per year is equal to 559.03 million US dollars and has an average growth rate of 4.73% per year, for the public expenditure used to investment is increasing every year with an average growth rate of 10.96% per year. The exchange rate of kip per US dollar has an increasing trend but overall there is a growth rate equal to 1 digit only in 2022 there is a growth rate equal to 2 digits which is equal to 45.94%. For the inflation, the growth rate is 6.33% per year, which is the year with the lowest inflation rate is 2017 which is equal to 0.83% and the year with the highest inflation rate is 2022 which is equal to 22.96%, The decreasing trend in which the year with the highest interest rate on US currency loans is 2002 which is equal to 13.5% and the year with the lowest interest rate on US currency loans is 2011 which is equal to 8.15%, the open trade has an increasing trend. The year with the highest increase in 2021 is equal to 77.91% of GDP and the money supply is increasing every year. For the analysis of macroeconomic factors to foreign direct investment, it was found that the economic growth rate of gross domestic product (GDPGRO), public investment expenditure, the exchange rate of kip per US dollar and the money supply have a positive coefficient and reject the null hypothesis with a statistical significance level of 0.01 and 0.05 indicates that it is a doubtful factor for foreign direct investment to increase. Meanwhile, the inflation rate has a negative coefficient and rejects the null hypothesis at a statistical significance level of 0.05, which is a factor that reduces foreign direct investment transfers. For the interest rate in dollars and the open trade, there are accepted null hypothesis, it shows that there is no effect on the transfer of foreign direct investment.

The impact of foreign direct investment inflows on unemployment and economic growth in West Africa

Purpose: This study explores the short- and long-run effects of foreign direct investment inflows (FDI) on both the unemployment rate and economic growth in West Africa utilizing a panel dataset spanning from 1991 to 2022. The precise impact of FDI on these variables and the underlying factors shaping this relationship in West Africa has not been definitively delineated. Previous literature has not exclusively delved into the impact of FDI on the unemployment rate in this region. Consequently, our paper endeavors to address this particular gap in knowledge concentrating on the individual countries within West Africa. Design/Methodology/Approach: We employ Pooled Mean Group (PMG) estimators and fixed effects models for our analyses. Findings: Our findings based on the PMG models unveil that FDI exhibits an insignificant positive long-term effect and a highly significant negative short-term impact on economic growth in West Africa. Similarly, we observe that the impact of FDI on the unemployment rate is negative both in the long- and short-term. Conclusion: Our findings demonstrate that various factors contribute to how FDI influences the unemployment rate and economic growth rate in West Africa. Research Limitation: The results of these models analyses are subject to the considered economic variables. Other economic variables could give different results. Practical Implication: The research findings imply that FDI cannot be relied upon as a comprehensive strategy to either stimulate economic growth or alleviate unemployment in the Western Africa region.

THE RELATIONSHIP BETWEEN FDI AND ECONOMIC GROWTH IN INDIA. A TIME SERIES APPROACH

Foreign Direct Investment (FDI) has gained importance after the second world war. In broader sense Foreign Direct Investment incorporates the establishment of up to date and advanced facilities, mergers and acquisitions, investing the profits earned from other overseas business activities, providing loans to other companies etc. In narrow sense the Foreign Direct Investment means investment in the country other than the investors own country. FDI can be better understood by studying the real reason that why the companies have shown interest in investing abroad rather than exporting and outsourcing their products to domestic firms. In due course of time many theories and approaches were developed to explain FDI. Although several researchers have tried to explain the phenomenon of FDI, we cannot say there is a generally accepted theory, every new evidence added some new elements and criticism to the previous ones. FDI in India is playing a noticeable role in the growth and development of the country. India is one of the important countries of the world which is able to receive substantial amount of FDI. The present study has made an effort to see the relationship between the FDI and Economic growth in India. GDP has proxies for economic growth. First the Johansen cointegration test result shows the long run relationship between variables and the Granger causality test result exhibits that there is unidirectional Granger causality between FDI and GDP. Next the Multiple Regression model result presents that the estimated coefficients on FDI & exports have a positive relationship with GDP. Therefore, it is statistically revealed that FDI and Exports are instrumental in influencing the level of economic growth in India. India is having certain drawbacks like Weak infrastructure, Complicated tax structure, Restrictive labor laws, Bureaucracy and Corruption. Unless and until these challenges are met with, India will never compete with China regarding FDI inflows. KEYWORDS: Foreign Direct Investment, Gross Domestic Product, Economic Growth.

EXCHANGE RATE DYNAMICS AND THEIR IMPLICATIONS

This research paper explores the dynamics of exchange rate fluctuations and their far-reaching implications for the global economy. Exchange rates are pivotal in shaping trade balances, inflation, and capital flows, making them a critical factor for policymakers, multinational corporations, and investors. By examining both theoretical frameworks and empirical evidence, this study analyzes the effects of exchange rate movements on key economic variables such as inflation rates, gross domestic product (GDP), foreign direct investment (FDI), and international trade balances. The paper employs a combination of econometric modeling and historical data analysis to evaluate how these fluctuations have influenced emerging and developed economies over the past two decades. Results indicate that exchange rate volatility can lead to inflationary pressures in import-dependent economies, disrupt trade balances, and influence FDI inflows. The findings also underscore the importance of stable exchange rate policies to mitigate economic uncertainty. This study concludes with recommendations for future research, particularly regarding the influence of digital currencies and geopolitical tensions on exchange rate stability.

IMPACT OF SOCIAL CONNECTEDNESS ON FOREIGN INVESTMENT CAPITAL: EVIDENCE FROM ASIAN COUNTRIES INVESTING IN VIETNAM

This study examines the correlation between foreign direct investment (FDI) inflows from Asian countries into Vietnam from 2010 to 2022 and social networks, as indicated by Facebook friend relationships (Social Connectivity Index, or SCI). The empirical results demonstrate that social connections significantly impact FDI inflows, suggesting that these linkages are crucial for reducing information friction and attracting foreign capital to Vietnam. These findings remain robust across various model specifications, including year-fixed effects and other known FDI determinants.