Foreign Direct Investment Performance Research Articles

Do FDI And Trade Openness Affect Economic Growth Differently Across Income Groups? Case Studies From Asian Countries

This study examines the nexus between foreign direct investment (FDI), trade openness (TRO) and economic growth for selected 11 high-income and 22 middle- and low-income Asian countries within a model using a more recent panel dataset over the period 2000–2021. The cointegration test has been applied in this study, which shows that whether there is a long-term interrelationship between FDI and economic growth, which we focus on in particular, and then the covariance matrix estimators that are developed by Driscoll and Kraay are used. Our findings indicate that there is a positive relationship between FDI and TRO, and economic growth for high-income countries, whereas the relationship between FDI and economic growth is negative for middle- and low-income countries. This study provides insights on why governments and policy makers in developing countries should focus on prioritizing domestic investment and production strategies for sustainable economic growth rather than simply emphasizing the attractiveness of FDI and the indispensability of import-oriented trade liberalization.

THE IMPACT OF TRADE LIBERALIZATION ON THE PERFORMANCE OF TANZANIA’S EXPORT SECTOR – A TIME SERIES ANALYSIS FROM 1980 TO 2019

 Aim: This article aims to enhance understanding of the impact of trade liberalization on Tanzania’s export performance. As many studies conducted, both in developing and developed countries, have yielded mixed results and the relationship varies across different nations, it is difficult to provide a definitive answer to the question of whether trade liberalization affects Tanzania’s export sector without first conducting an empirical analysis. Methods: This study employs a quantitative research methodology because it allows for a larger sample size, greater objectivity, and accuracy. Due to the nature of the study and the data used, a statistical study design was chosen. Macroeconomic data spanning 1980 to 2019 was obtained from the World Bank and the Tanzania Bureau of Statistics to analyze the effects of trade liberalization on export performance using vector error correction and autoregressive distributed lag models. Results: The results reveal a sig­nificant positive correlation between trade liberalization and subsequent export performance, as well as the interdependencies between trade liberalization and foreign direct investment (FDI) strategies. There is a re­ciprocal relationship between trade liberalization and exchange rates, implying the significance of competent exchange rate management in enhancing export competitiveness. Conclusions: The study concludes that trade liberalization, FDI, and export performance have a long-term positive correlation. This implies that a carefully executed trade liberalization policy is crucial not only for the expansion of the export industry sector and the influx of capital, but also for the transformation and development of the nation.growth.

Diversity within commonality: A comparative study of the impact of foreign direct investment and trade openness on economic growth

The relationships between foreign direct investment (FDI), trade openness, and economic growth are complex and analyzed by many researchers. Still, there are some gaps in our knowledge as literature documents positive, negative, and ambiguous impact of FDI and trade openness on economic growth. This paper addresses one of these gaps and focuses on the similarities and differences among countries from Central and Eastern Europe and West Africa. The econometric analysis covers the 1995-2022 period and employs panel data methods to reveal the long-term positive impact of FDI and trade openness on economic growth in West African countries and long-term positive impact of FDI on economic growth in Central and Eastern European countries. We also demonstrate that apart from cross-border linkages captured by FDI and trade flows, economic growth in Central and Eastern European countries positively correlates with global economic development, however, in case of West Africa this effect is statistically insignificant.

Determinants of Economic Growth: A Granger Causality Analysis

ABSTRACT: Countries devote a lot of time and effort to develop economically, but they nevertheless struggle to attain that growth consistently. Research into economic growth should have provided some guidance as to which actions these countries should adopt, but multiple studies using different methods and datasets generally have led to an array of outcomes that contradict one another. However, Granger causality analysis can provide better insight into the relationship between some key variables and economic growth to give these countries more direction. Granger causality results establish a stronger connection between variables, even though they do not depict true causation. We therefore use a Vector Auto Regression method with Generalized Method of Moments estimation and then Granger-causality to discover how commonly used variables in the literature individually impact economic growth and in what way for a selection of OECD and non-OECD countries. We choose government expenditure, foreign direct investment (FDI), education (as a proxy for human capital), population growth, urbanization, and trade openness as our variables of interest. We also utilize updated datasets from the World Development Indicators (WDI) ranging from the years 2000-2016, based on the availability of the data. We find that FDI and population growth do Granger-cause economic development for OECD countries but that government expenditures, education, urbanization, and trade openness do not show such Granger causality. However economic growth Granger-causes government expenditures, FDI, and education for these OECD countries. For the non-OECD countries, we find that FDI, population growth, and trade openness Granger-cause growth but Granger causality does not occur from government expenditure, education, and urbanization to economic development. Yet similar to the OECD countries, economic growth does Granger-cause FDI and trade openness for the non-OECD countries as well. The overall results indicate that all countries should encourage the expansion of foreign direct investment to grow their economy, which then in turn can lead to additional investment as well as more resources available for the country as a whole. We also suggest further studies should focus on the economic development of individual countries rather than regions, particularly in terms of how technology can drive growth and impact these other variables.

Outward foreign investment performance, digital transformation, and ESG performance: Evidence from China

This study examines the impact of outward foreign direct investment performance (OFDI/OFIP) on digital transformation (DT) and determines how environmental, social, and governance (ESG) performance mediates this relationship. For this purpose, we employ a panel regression model, mediation effect tests (the Sobel test, a bootstrap test, and variable replacement test), and endogeneity analyses (2SLS and GMM method). We also evaluate China's accelerated depreciation of fixed assets policy (ADP) by using a difference-in-difference (DID) model, parallel trend test, propensity score matching (PSM)-DID model, quantile DID model, and bootstrap test. We use the CSMAR database for Chinese OFIP, and perform text and word frequency analysis to obtain the DT score and the Huazheng ESG ratings index for the ESG Performance during the period 2010–2020. (1) Based on the results, OFIP has a significant positive impact on firms' DT, with ESG performance strengthening this relationship. (2) Meanwhile, the ADP restrains the DT and OFIP of high-tech firms in China. These findings provide practical implications for companies aiming to improve their long-term sustainability and competitiveness and obtain a better understanding of the relationship between OFIP, DT, and ESG performance. It is hoped that the findings will be used as a reference for expanding firms' overseas investments, driving DT, and enhancing ESG performance in emerging economies.

FOREIGN DIRECT INVESTMENT PERFORMANCE DRIVERS AT THE COUNTRY LEVEL: A ROBUST COMPROMISE MULTI-CRITERIA DECISION-MAKING APPROACH

This paper focuses on the performance drivers of Foreign Direct Investment (FDI) at the country level, exploring the socio-demographic specifics of donor and receiver countries. To this end, a novel Robust Compromise (RoCo) Multi-Criteria Decision-Making (MCDM) model is proposed using non-linear programming solved by genetic algorithms. The model builds upon established traditional models for alternative ranking and criteria weighting. Subsequently, a stochastic robust regression is performed, building upon previously computed bootstrapped Tobit, Simplex, and Beta regressions to handle performance scores ranging between 0 and 1. The goal is to test FDI performance against a set of contextual variables. The findings suggest that the performance of FDI is relatively low, and relevant improvements should be made. Our second stage analysis reports that higher GDP per capita and good social welfare, including lower infant mortality and higher life expectancy, contribute to the improvement in FDI performance. Furthermore, it is found that a large percentage of women in the total population, wealth concentration in the destination country, as well as the degree of urbanization, are helpful to improve FDI performance. Finally, we find that FDI performance is mainly concentrated on industries that are high-tech and high value-added.

PETROLEUM ENERGY CONSUMPTION, TRADE OPENNESS AND FOREIGN DIRECT INVESTMENT: A TRIPARTITE APPROACH TO ECONOMIC GROWTH IN NIGERIA

Nigeria is an oil-rich country with a significant reliance on petroleum consumption. This study examines the tripartite effects of petrol final energy consumption, trade openness, and foreign direct investment on economic growth in Nigeria over the period 1990-2021. The unit root results and the number of data points at the disposal of this study permit the application of ARDL econometric estimation technique. The short-run and long-run estimated parameters indicate that there are impacts of petroleum consumption, Foreign Direct Investment (FDI) and trade openness on economic growth in both short-run and long-run in Nigeria. In the long run, petroleum consumption (0.3762%), trade openness (0.2272%) and FDI (0.1271%) have a positive and significant impact on economic growth. The coefficient of the error correction term is negative and statistically significant. This implies that the model is mean-reverting, and that the short run model tends to revert to its long-run equilibrium value over time in the event of disequilibrium at the speed of 63% per annum. The model is robust for policy making as it passed diagnostics tests, no evidence of serial correlation, no evidence of heteroskedasticity, no evidence of model misspecification, there is dynamic stability via Cusum and Cusum of Square and the residuals are normally distributed as evidenced from Jarque-Bera statistics. Based on the statistically significant positive impacts of petroleum energy consumption, trade openness and foreign direct investment, this study suggests that policies aimed at increasing petroleum consumption, FDI and trade openness are going to lead to increase in economic growth in Nigeria.

Is There a Trade-off Between Economic Growth, Foreign Direct Investment, International Trade and Environmental Degradation? A Comparison Between Asian Developed and Developing Countries

Against the backdrop of impressive economic growth, the attractive foreign direct investment (FDI) and international trade of Asian countries, this study attempts to examine whether trade-offs between three aspects of economic growth, FDI, international trade and environmental degradation. Panel Autoregressive Distributed Lag (P-ARDL) model with pooled mean group estimates has been applied on panel data from 1996 to 2019. Panel Vector Error Correction model (VECM) Granger causality test is also used to identify multidimensional causal relationships between variables. The research results confirm the existence of a long-term equilibrium relationship between environmental degradation (CO2 emission) and the combination of economic growth, FDI and trade openness. In the short run, income positively affects CO2 emission while negative impacts and lower income elasticity have been found in the long run, implying that CO2 emission decreases and reverses its direction when income rises. Contrasting results collected from two groups of developed versus developing countries, the author reveals a linear relationship with a positive direction between economic growth and environmental degradation in developing countries while opposite results have been shown in developed nations, which supports the environmental Kuznets curve hypothesis in Asian countries. This study also provides sound proof for the ‘pollution haven hypothesis’ and the scale effects on FDI attraction and international trade. By applying relatively new estimators in the field of econometrics to compare the differences between Asian developed and developing countries, the research highlights the appropriate policies contributing to sustainable economic growth, attractive FDI and growing green trade with minimum adverse effects on the environment. JEL Codes: C33, F18, F21, F43, O44, Q40, Q51, Q53

Causality between Financial Development and Foreign Direct Investment: Evidence from Tanzania

This study investigates the causal relationship between Foreign Direct Investment (FDI) and Financial Development during the period 1990-2020 in Tanzania. The study aims to shed light on whether FDI inflows have a significant impact on the financial development of the country and vice versa. The analysis employs time series data including GDP, Inflation rate, Formation (capital and Investment), Trade Openness, Country Population size, and Financial Development, to explore the causal links. Using the Granger causality test, the study finds no evidence of causality between FDI and Financial Development, indicating that FDI inflows do not significantly predict changes in financial development, and vice versa. Similarly, the study does not find significant causality between FDI and other control variables such as GDP, Inflation, Formation, and Country Population size. However, there is a significant bi-directional relationship between FDI and Trade Openness, indicating complementarity between FDI and international trade. The results imply that FDI inflows might not be the sole determinant of financial development or other macroeconomic indicators. Policymakers should not solely rely on FDI as a solution to enhance financial development but should focus on creating a conducive environment for FDI and supporting measures that foster financial development independently. The study recommends that policymakers should prioritize strengthening institutions and regulatory frameworks to attract and retain FDI effectively. They should also promote trade liberalization and enhance the domestic financial system to stimulate both FDI inflows and domestic investment.

Impact of FDI and foreign trade openness on carbon emissions in China: evidence from threshold regression model

ABSTRACT Using panel data of 20 industries in China from 2006 to 2019, this paper constructs a fixed effect model to study the impact of FDI (foreign direct investment) and foreign trade on China’s industrial carbon emissions. We combine the panel threshold model to explore the impact mechanism of FDI and foreign trade on industrial carbon emissions under the difference of independent technological innovation. Research efforts has shown that FDI and foreign trade have a long-term promoting effect on industrial carbon emissions, indicating that the ‘pollution shelter’ hypothesis is valid in the context of China’s industrial industry. The threshold regression indicates that with the increase of independent technological innovation, the increase in carbon emissions promoted by FDI while foreign trade decreases. When considering heterogeneity issues, FDI and foreign trade in moderately and heavily polluting industries significantly increase carbon emissions compared with lightly polluting industries; Compared with heavily polluting industries, moderately polluting industries have a more significant positive impact on carbon emissions from foreign trade. The research conclusion provides reference for reducing carbon emissions and improving environmental quality by emphasizing the industry structure of FDI and foreign trade, fully stimulating independent technological innovation, and creating an innovation atmosphere.

Toward a sustainable future: Examining the interconnectedness among Foreign Direct Investment (FDI), urbanization, trade openness, economic growth, and energy usage in Australia

The energy demand in Australia is increasing with the industrialization and rapid economic growth. This study analyzed the relationships among the economic growth, Foreign Direct Investment (FDI), trade openness, urbanization, and energy usage in Australia based on the data from World Development Indicators (WDI) from 1972 to 2021. The results indicated that there is a cointegration among economic growth, FDI, trade openness, urbanization, and energy usage, which was traced through the autoregressive-distributed lag (ARDL). The Zivot-Andrews unit root test reveals that energy usage, economic growth, FDI, urbanization, and trade openness show significant structural breaks in 1993, 1996, 1982, 2008, and 1994, respectively. The ARDL model shows that economic growth has a positive and significant effect on energy usage in the long-run (0.814) and short-run (0.809). Moreover, the results also show that FDI (0.028) and trade openness (0.043) have positive impacts on energy usage in the long-run. However, urbanization shows a negative and significant influence on energy usage in the long-run (−0.965). Then, the research demonstrates a unidirectional causation between energy usage and trade openness, with energy usage significantly causing trade openness. The current study endorses energy consumption policies and investment strategies for a paradigm shifting from a reliance on fossil fuels as the primary energy source to renewable energy sources. These findings have profound implications for sustainable energy usage.

Investigating the modern renewable energy-environmental Kuznets curve (REKC) hypothesis for East Africa Community (EAC) countries

PurposeThe study aims to explore the validity of the modern renewable energy-environmental Kuznets curve (REKC) while considering the relevance of financial development in the consumption of modern renewable energy in East Africa Community (EAC). Modern renewable energy in this study includes all other forms of renewable energy except traditional use of biomass. The authors controlled for the effects of urbanization, governance, foreign direct investment (FDI) and trade openness.Design/methodology/approachPanel data of the five EAC countries of Burundi, Kenya, Rwanda, Tanzania and Uganda for the period 1996–2019 were used. The analysis relied on the use of the autoregressive distributed lag–pooled mean group (ARDL-PMG) model, and the data were sourced from the World Development Indicators (WDI), World Governance Indicators (WGI) and International Energy Agency (IEA).FindingsThe REKC hypothesis is supported for modern renewable energy consumption in the EAC region. Financial development positively and significantly affects modern renewable energy consumption, whereas urbanization, FDI and trade openness reduce modern renewable energy consumption. Governance is insignificant.Originality/valueThe concept of the REKC, although explored in other contexts such as aggregate renewable energy and in other regions, has not been used to explain the consumption of modern renewable energy in the EAC.

Foreign direct investment openness and income classes in Europe around the Great Recession

Distributional implications of capital account regulation is eminently context-specific. This paper examines the distributional effects of the openness of foreign direct investment (FDI) flows across 27 European countries in different economic environments around the Great Recession, covering the period 2007–2013. Our multi-level approach allows us to combine country-level variables and sociodemographic characteristics of individuals. The results highlight that the openness of FDI flows heterogeneously affects the income share of individual groups, favouring in particular the highest income classes. This finding seems to be driven by the educational level. We argue that even though highly educated individuals are present along the entire distribution, the highest income classes are especially favoured by the openness of FDI flows. This biased distributional effect of the openness of FDI flows persists throughout the years examined, regardless of the economic environment; this is due, in part, to the fact that the distribution of highly educated people is not sensitive to the business cycle.

Industrial impact analysis of foreign direct investment on economic development in Cambodia

PurposeCambodia's sustained and robust growth performance since the post-reform era in 1993 has been attributed to the boom in inward foreign direct investment (FDI) attracted to the country's labor-intensive industries, where it has comparative advantages. The purpose of this study is twofold. First, it aims to assess the consistency between Cambodia's revealed comparative advantage in exports and its sectoral inward FDI. Second, it examines the relationship between industry-level FDI and growth performance by accounting for heterogeneity across industries.Design/methodology/approachThe paper uses descriptive methods and an industry-level dataset provided by the Council for the Development of Cambodia to elucidate the issue. Additionally, it applies instrumental variable two-stage least squares (IV-2SLS) regression to investigate the impact of industry-specific FDI on economic growth from 1994 to 2017, which also aims to address the endogeneity issue.FindingsOn the one hand, our research finds that Cambodia's FDI has been attracted to sectors in which it has a comparative advantage during the aforementioned period. On the other hand, both FDI and the comparative advantage index significantly impact economic growth in Cambodia. The greater the flow of foreign investment into sectors with comparative advantage, the stronger the impetus for growth.Originality/valueThis study fills a gap in the literature and contributes to a better understanding of the relationship between FDI and economic growth in Cambodia. It is the first paper to investigate the heterogeneity of industry-specific FDI and provides practical recommendations for policymakers to effectively harness foreign investments and avoid malign FDI inflows.

Effect of Foreign Direct Investment and Trade Openness on the Poverty Alleviation in Burundi – Sub African Country: ARDL (Co-integration) Approach

International Trade and Foreign Direct Investment openness are crucial for economic growth and development. These are equally significant for developed and under-developed countries. The study’s major goal was to look at how foreign direct investment, inflation, GDP and trade openness affected the poverty alleviation in Sub-Saharan African Countries. A country where half of the population lives below the poverty. Annual data for the period 1990 to 2021 gathered from World Development Indicators database to investigate the long run & short run effects of the independent variables for the Sub-Saharan African countries by using Auto-regressive and Lag distributive (Co-integration) model. The findings revealed negative long run influence of foreign direct investment and GDP to poverty head count ratio. The shreds of Evidence also showed that FDI has not shown any distinctive effect on poverty in a shorter period. Moreover, GDP, trade openness and inflation are also effective in reducing poverty in short run. While inflation urges the investors to do more investment in production sector that reduces unemployment and poverty in the end. The study suggested the government officials, policymakers, and investors, to invest more in the poor countries. As FDI is crucial in creating jobs for the unemployed population that lead to the rise in income and living standard of the people. Moreover, the study suggested questioning some other factors causing poverty.

How Does the Competitiveness Index Promote Foreign Direct Investment at the Provincial Level in Vietnam? An Integrated Grey Delphi–DEA Model Approach

Foreign direct investment (FDI) is an important factor in building a strong economy for a country, particularly in developing and emerging markets. Both domestic enterprises and policy makers have been motivated to attract FDI for the benefits of FDI, such as technological transfers, spillover benefits, and rising competition. There is a need for a functional model to assess how the competitive index affects FDI attractiveness. Therefore, in this study, the authors use an integrated model of Grey Delphi, the Data Envelopment Analysis Super Slack-Based Measure Model (DEA–Super SBM), and the Malmquist Model (DEA–Malmquist) to evaluate the FDI attractiveness of Vietnamese provinces from 2017 to 2021. Firstly, ten critical dimensions of the provincial competitive index (PCI) affecting the number of FDI by cases and amount of FDI capital were validated via the Grey Delphi method. Secondly, the Super-SBM model is applied to assess the FDI efficiency of 63 provinces in Vietnam from 2017 to 2021. Then, the DEA–Malmquist model is employed to analyze the total change in the productivity of 63 provinces’ FDI performance in Vietnam. The findings of this study revealed that the efficiency of FDI in Vietnam’s provinces is relatively low, and there is a significant variation in the attractiveness of FDI among the provinces. This study can provide valuable insights for policy makers and other stakeholders in developing effective strategies to attract FDI and foster economic development.

Urbanization and carbon emissions: Panel evidence from 68 low-income and lower-middle-income countries

ABSTRACT Although the developed world has almost completed the process of urbanization, developing countries are still rapidly urbanizing. Applying the extended stochastic regression on population, affluence, and technology (STIRPAT) model for the period 2000–2019, this article is an endeavor to explore the consequences of urbanization along with gross domestic product (GDP) per capita, foreign direct investment (FDI) inflow, trade openness, and mobile phone penetration on carbon dioxide emissions in 68 low-income and lower-middle-income countries across Asia, Africa, Middle East, and South America. Initially, the study used a panel unit root test to identify whether the variables are stationary or not. Subsequently, by using the co-integration test, a long-run association among the variables was seen. Finding a long-run relationship, the fully modified ordinary least squares method was applied to examine the impact of urbanization and other explanatory variables on carbon dioxide emissions. Results showed that urbanization followed by GDP per capita are the key promoters of CO2 emissions across all countries, whereas the direction and significance of inward FDI and trade openness varied across regions. Furthermore, it was observed that mobile phone penetration (as an indicator of information and communication technology [ICT]) has a significant and negative relationship with CO2 emissions, showing that ICT-based technologies might be the answer to decoupling economic growth from emissions growth.

Foreign direct investment by multinational corporations in emerging economies: a comprehensive bibliometric analysis

PurposeThis study introduces a comprehensive bibliometric analysis of the foreign direct investment (FDI) literature by multinational corporations (MNCs) focusing on emerging economies to identify the most influential authors, journals and articles in FDI research and reveals the fields' conceptual and intellectual structures. The purpose of this paper is to address these issues.Design/methodology/approachThe study analyzed 533 articles published between 1974 and 2020 in 226 academic journals indexed in the Web of Science (WoS) and Scopus databases. We used the R language for statistical computing to map author collaboration, co-word and develop a conceptual and intellectual map of the field.FindingsThe results show that, although the FDI literature has many authors, few dominate the field. The International Business Review (IBR) and International Journal of Emerging Markets (IJoEM) are the main sources of the publications. Moreover, bibliometric laws show that our dataset follows the Lotka law of scientific productivity and Bradford law of scattering, identifying the core journals. Finally, FDI by MNCs in emerging economies research is divided into four sub-research themes related to (1) FDI determinants, (2) entry mode, (3) MNCs and FDI performance and (4) the internationalization process.Originality/valueThe current article provides several starting points for practitioners and researchers investigating FDI. It contributes to broadening the vision of the field and offers recommendations for future studies.

The Environmental Consequences of FDI and Trade Openness: Evidence from Pakistan

The objective of this study is to determine the impact of trade openness (TO) and foreign directinvestment (FDI) on quality of environment in Pakistan. This study used ARDL bound test for cointegration, covering the period from 1975 to 2019. Statistical soundness of model is verified by usingdiagnostic tests. The findings of ARDL bound test indicate a long run (LR) relationship betweenvariables. The feedback coefficient confirms the adjustment in equilibrium in the LR. The outcomesreveal that both in LR and short-run (SR), FDI is detrimental for environment quality. Whereas, tradeopenness improves environment quality in the LR but it is harmful in the SR. The findings endorse thepresence of Environmental Kuznets Curve in Pakistan. Residual based diagnostic tests ratify thestatistical soundness of the model. The results suggest that while pursuing trade openness and FDIfriendly strategies for economic expansion in Pakistan, policymakers should also take care of theenvironment security. Otherwise FDI, trade-led growth will be threatening environmental sustainabilityina developing country which might be jeopardizing socio-economic development.

Economic Growth, FDI, Trade Openness, and Inequality: Standing of Asian Economies

The main objective of this study is to identify the effect of foreign direct investment (FDI) and trade openness (TO) on income inequality in 25 Asian economies using panel data from 1991 to 2018. The effects of FDI and trade openness on income inequality in the Asian region has been examined by using the Kuznets curve hypothesis on the growth–inequality relationship and employing a random effects model, generalized least squares, and system GMM estimations. This study found that the effect of FDI and trade openness on inequality is positive as they enhance income inequality in the Asian region. It also found that the growth–inequality relationship is non-linear with an inverted U-shape, which indicates that growth increases inequality in Asian economies to a certain level; after that, an additional increase in per capita GDP decreases the income inequality. This study exposed that FDI and trade openness have increased inequalities in the Asian region, making it difficult to achieve the Sustainable Development Goal (SDG) 10 within the stipulated timeframe. Asian economies should therefore review investment- and trade-related policies to reap the benefits and to ensure equitable income distribution.