Interaction Of Foreign Direct Investment Research Articles

Impact of Foreign Direct Investment on Manufacturing Sector: Evidence from Indian Economy

There is need for an additional source of finance in form of foreign direct investment (FDI) in the Indian manufacturing sector due to its long-term engagement between the investors and the host country. Further FDI in the manufacturing sector is gaining importance because of the benefits the manufacturing sector reaps as a result of technology spillover brought through FDI. Therefore the objective of the study is to assess the impact of Foreign Direct Investment on the manufacturing sector output of the Indian economy for the period of 1991–2020. Methods such as bounds test, Autoregressive Distributed Lag Model (ARDL) and Granger causality are used to study the impact of FDI and the interaction of FDI and human capital as two different variables on the output of the manufacturing sector in the Indian economy. Also, the technology-enhancing effect of FDI is addressed in the current study. The results of the study reveal that the inflow of FDI leads to an increase in manufacturing sector output. Further, it concludes that the higher the level of education (human capital) and the greater the technology gap between host and home country, the more is the technology spillover, and hence more prominent is the impact of FDI on the output of the manufacturing sector.

Indian Experience of Managing Impossible Trinity, Growth and Possible Tradeoff Between FDI and FIIs: Nature of Capital Inflows Matter

The current focus emphasizes the difficult choices faced by Indian management of the impossible trinity to manage import-led growth. The management highlights two mechanisms by which FDI (foreign direct investment) flows are easily substituted for short-run FII (foreign institutional investment) flows. First, GDP and its growth in an open economy framework and the associated international trade participation can clarify this substitution prospect. Specifically, this study develops reasoning whereby imports under the trilemma management can give some decisive advantage to FII at the cost of FDI to manage Indian import-led growth. Second, it underlines how the related policies, especially the sterilization interventions, constrain the interactions of higher domestic investments (domestic savings), spillover impacts of imports of intermediate and capital goods, and specialized FDI. If so, the Indian economy’s import-led growth can indicate FII and FDI tradeoffs. The study uses the ARDL regression method. The results show that the Indian policy-led macro environment can limit the scope of specialized FDI that aims to induce advanced domestic investment, exports, and FDI interactions. India’s focus on import-led growth thereby underpins how FII substitutes FDI. JEL Classification F21, F3, F4, O11, O14

Fintech, Financing Pathway and Regional Innovation Performance: Based on China's Provincial Panel Data from 2011 to 2020

Based on the panel data of 30 provincial administrative planning regions in China from 2011 to 2020, this paper examines the impact of fintech on the achievement of regional innovation, and further studies the regulatory effect and interaction of Foreign Direct Investment and Industry-University-Research Collaboration on the relationship between them. The results show that: fintech is positively correlated with the achievement of regional innovation; further research shows that Foreign Direct Investment makes an inhibitory role on fintech, Industry-University-Research makes a promotive role on fintech and there is a substitution effect between Industry-University-Research and Foreign Direct Investment in a long-term planning. The analysis of regional innovation efficiency of our country shows that regional independent innovation is still in the stage of Economies of scale, and the allocation of social resources has not reached the optimal level.

Carbon emission effect of renewable energy utilization, fiscal development, and foreign direct investment in South Africa.

In recent times, the persistent global environmental challenges have paved the way for the underpinning of climate change within the perspective of financial performance. Given this motivation, the current study further examines the interaction of foreign direct investment, fiscal development, renewable energy usage, economic growth, and CO2 outrush of South Africa (1970 to 2014). The unit root test of Zivot-Andrews and augmented Dickey-Fuller (ADF), vector autoregressive (VAR), and Pesaran ARDL (autoregressive distributed lag bounds) approach were employed in the data analysis. The existence of a statistically significant correlation among the series was detected by the Johansen multivariate cointegration in long term and subsequently by the long run coefficient of the vector error correction model test result. Furthermore, in the long run, significant positive correlation existed among renewable energy, GDP (economic growth), development in finance (FD), and CO2 outrush. While in the short run, GDP and development in finance have a statistically positive correlation with outrush of CO2; renewable energy consumption exerts a negative relationship on CO2 in the short run. The Granger causality results show overall causality among the series; proof of bidirectional stimulus running from renewable energy to economic growth; foreign direct investment to trade; and also one causality direction running among the other variables. The policy twist is that the implementation of energy efficiency programs currently pursued by the South African government to enhance renewable energy consumption should be facilitated with more determination. In addition, the government and policymakers should thrive to align these energy efficiency programs with other macroeconomic and financial variables such as foreign direct investment (FDI), fiscal development, and trade openness to achieve minimum CO2 outrush level in South Africa, thus yielding environmental sustainability.

The moderating effect of foreign direct investment on environmental degradation-poverty reduction nexus: evidence from sub-Saharan African countries

This study examined the role played by foreign direct investment in environmental degradation-poverty reduction nexus using panel data from 39 sub-Saharan Africa countries. The study covered the period 1986–2018, while dynamic GMM was employed for the estimations. When poverty reduction was measured by household final consumption expenditure, it was found that the interaction between foreign direct investment and environmental degradation measures failed to contribute to poverty reduction. However, when poverty reduction was measured by the human development index, it was found that the interaction of foreign direct investment and environmental degradation enhanced poverty reduction. When poverty reduction was measured by life expectancy, the interaction term of FDI and carbon dioxide ( $$CO_{2} )$$ was harmful to poverty reduction, while the interaction terms of FDI with other measures of environmental degradation had no effect on poverty reduction. The implications of the study were discussed.

Discussing on The Need of Examining the Effect of FDI on Western China

Western China, where the over-all economic performance is the most lagged-behind in the country, exhibits significant differences in status of FDI (Foreign Direct Investment) and factors attracting FDI compared with its Eastern counterparty. The positive effects of FDI on economy has been proven in the East during decades of rapid development, while the interaction of FDI with local economy in the West has not been sufficiently studied.

Globalisation and regional income growth disparity in India and the People’s Republic of China (PRC)

PurposeThis study aims to explain the role of globalisation on the regional income growth disparities in the states of India and provinces in the People’s Republic of China (PRC).Design/methodology/approachThe authors use two approaches to analyse regional growth disparities: growth accounting and the panel spatial Durbin model.FindingsThe growth accounting shows that contributions of growth of capital intensity (GKI) and total factor productivity growth (TFPG) distinguish the high-income (HI) regions from medium-income (MI) and lower-income (LI) regions in India. In the PRC, the contributions of GKI and TFPG in MI regions are slightly higher than HI regions, but significantly higher than the LI regions. The empirical results find that foreign direct investment (FDI), domestic investment, human capital, and interaction of FDI and human capital explain income growth states/provinces in India and the PRC. A region’s income growth and FDI inflows spread the benefit to neighbourhoods in both countries.Originality/valueThe paper contributes by performing a comparative analysis of Indian states and the PRC’s provinces by capturing the neighbourhood effects of economic growth, FDI, investment and human capital and also the interaction effects of FDI with human capital and domestic investment. A comparison of the decomposition of income growth to the growth of factor inputs and efficiency in Indian states and the PRC’s provinces also adds to the existing literature.

Financial development threshold, private capital inflows and economic growth

PurposeThis study aims to examine the relationship between private capital inflows, financial development and economic growth in 28 sub-Saharan African (SSA) countries between the periods 1995 and 2017.Design/methodology/approachThe study used a secondary source of data obtained from the world development indicator (WDI) and used the system generalized method of moments (SGMM) and dynamic panel threshold regression to analyze the data.FindingsThe study found that foreign direct investment has a negative and significant impact on the economic growth of SSA. The study also found that portfolio investment has a positive impact on economic growth but it is statistically insignificant. However, when portfolio investment interacted with financial development, it became positive and statistically significant presupposing that financial development is a necessary condition for portfolio investment to exert impact on economic growth. Further, the study showed that the interaction of foreign direct investment with financial development has a negative and significant effect on economic growth. Finally, the study found the minimum threshold of financial development at 42.66 per cent.Practical implicationsPolicymakers in SSA should be cautious and critical in the kind of foreign direct investment they attract as the open door policy to attract all kinds of foreign direct investment would not bring about the desired result. Also, policymakers in the region should develop and implement policies that would deepen and strengthen the financial system to foster the development of the country’s financial sector and accelerate economic growth.Originality/valueThe contribution of the study lies in establishing a minimum threshold of financial development; thus, providing a clear-cut direction for policymakers in SSA countries in their pursuit of financial development and economic growth.

The Effect of International Financial Reporting Standards on the Association between Foreign Direct Investment and Economic Growth: Evidence from Selected Countries in Africa

The study aims at examining how IFRS adoption influences the relationship existing among foreign direct investment (FDI) and economic growth. The data consist of 12 developing economies that are the highest recipients of FDI in Africa, and the years of study are from 1996-2018. Using Ordinary Least Square and Generalized Least Square method of estimation, the result shows that IFRS is significantly positive to FDI. With FDI inflows in these countries, the result provides evidence that Non fully-IFRS adopted countries experience higher inflows of FDI than the fully-IFRS adopted countries. We find FDI inflows to also have positive influence on economic growth. The interaction of FDI and IFRS also influences economic growth positively when further analysis was carried on. The results provide evidence of positive relation among FDI, IFRS, and economic growth. IFRS adoption promotes FDI inflows which consequently spurs economic growth. There is, therefore, the need for policymakers to ensure adoption and enforcement of IFRS.

Integrating Liberal Economic Regulation with Environmental Protection: Ethiopia, Zambia, Mali and Ghana

Foreign investors and host African countries have a tied interest in the economy. The interaction of foreign direct investment (FDI) and the environment impacts on the natural world and the population in no small measure. As the interaction evolves, other factors, such as human rights, sustainable development and resource management also begin to shape economic activities. Their impact depends on the regulations and policies of recipient countries. Some researchers believe that the inflow of FDI makes government tighten its environmental regulation and policies, but such a finding is too generalised. The increase in global environmental consciousness shows that relaxed environmental policies have been part of the incentives for attracting FDI into Africa in past years. This paper focuses on how the regulations and policies of selected African countries influence their position in international investment agreements and how such agreements affect environmental laws. A sub-regional policy template is needed that will guide members of regional economic blocs like ECOWAS in framing balanced policies for the environment and FDI.

Does Foreign Direct Investment Encourage State Militarization and Reduce Societal Security? An Empirical Test, 1980–2017

Abstract Scholars debate the effects of foreign direct investment (FDI) on poor societies. Apparently, FDI could embolden governments to securitize rather than reform, an argument put forth recently by (Kishi, Roudabeh, Maggio, Guiseppe, & Raleigh, Clionadh. (2017). Foreign investment and state conflicts in Africa. Peace Economics, Peace Science and Public Policy, 23(3), https://doi.org/10.1515/peps-2017-0007) who supply evidence within a sample of Sub Saharan African countries showing that FDI increases the number of conflict events. This study takes a critical view of their argument on conceptual and methodological grounds. Using new data for the entire world as well as a sample of developing countries, this study directly tests securitization as militarization measured as military spending and the size of armed forces and finds that several alternative measurements of the stock and flow of FDI reduces militarization, results that are robust to fixed effects estimations, Heckman selection models, and models with and without controls for ongoing armed conflict and interstate tension. Testing an Africa-only sample yields no statistically significant effects either way, but compared to the global sample, an interaction of FDI in Africa does show a positive effect. This result, however, is substantively very slight compared with the net effect of the African region where military spending is unusually greater than in other regions, but size of armed forces are smaller. These results are replicated using a measure of societal security capturing more than just the absence of war as measured by the World Economic Forum’s data. If FDI increases security without increasing militarization, then FDI is potentially a sound source of finance for poor countries. Case-study-based research might usefully unpack the political economy of defence spending in Africa and identify precisely how TNCs can be implicated in the story. Our results show, however, that generally, FDI might actually reduce militarization while increasing societal security beyond just the absence of armed violence.

National governance and foreign direct investment interactions: international evidence

The purpose of this study is to investigate the interactions between foreign direct investment (FDI) inflows and national governance indicators on international data. It also examines the impact of international financial reporting standards (IFRS) and the legal systems of sample countries on national governance and FDI. Building on extant literature and applying both OLS and 2SLS approaches on a sample of 173 countries, the empirical evidence confirms two-way interdependence between national governance and FDI in determining each other, which remains valid after controlling for per capita income, regional and country status groups of sample countries. In addition, IFRS and the type of legal system find a significant impact on national governance, but not on FDI. These findings of the study are valuable for individual governments, policy makers and international donor organisations to strengthen national governance indicators in order to attract FDI and improve the accountability and transparency of macro-economic measures.

National governance and foreign direct investment interactions: international evidence

National governance and foreign direct investment interactions: international evidence

An Empirical Analysis of the Financial, Economic and Political Determinants of Corruption in China

This paper investigates the interaction of foreign direct investment, economic growth and political capacity on corruption in China. We use aggregated data from 1998 – 2007 and construct a profile for each sub-national province in China. This paper contributes to the existing political economy literature and applies expected utility modeling and estimation. The governance system provides institutions with political monopoly in which agents rent-seek. We develop a model of rent-seeking and test estimated effects of variable components along with interactions on corruption. The results highlight the provincial and regional differences across China as well as the peculiar nature of corruption on this rising star of the international system. The conclusion is consistent with the current policy action by the central Chinese authorities to minimize-rent seeking behavior as the effects are shown to be highly negative to long-run social welfare.

Pengaruh Foreign Direct Investment (FDI) Terhadap Pertumbuhan Ekonomi di Nusa Tenggara Barat Tahun 2010-2014

This research aims to analyse the effect of Foreign Direct Investment (FDI) on the economic growth of West Nusa Tenggara (NTB) province within 2010-2014. The dependent variable is economic growth, meanwhile the independent variables are : 1) FDI proxied from the percentage of foreign capital investment towards PDRB; 2) Schooling or level of education proxied from the percentage of up to 15 years –old people who complete senior high school education level; 3) Domestic investment proxied from the percentage of domestic capital investment towards PDRB; 4) The interaction of FDI and human capital (level of education) and the control variables which consist of APBD proxied from the percentage of APBD towards PDRB and inflation variable proxied from PDRB deflator. Data analysis used in this study is regression model of panel data. The data is obtained from 10 districts and cities in NTB province from 2010 to 2014. The chow test and hausman test resulted to use fixed effect model in that panel data regression procedure. The results show that FDI has a positive yet unsignificant effect on the economic growth with the confidence level of 95%. It is caused by the low level of technological transfer by the province human resources due to the domination of less educated workers.

Assessment of foreign direct investment, export and economic growth on the example of Kazakhstan

The article considers the problem of estimating the communication of foreign direct investment, net exports and economic growth. As an example, the Republic of Kazakhstan is taken. Based on the method of calculation of the gross domestic product (GDP) expenditure and using the method of regression analysis, the impact of foreign direct investment (FDI) and net exports to GDP and interaction of FDI and net exports as components of GDP are evaluated. Keywords: investment, FDI, GDP, net exports, economic growth, correlation and regression analysis. JEL Classification: А10, C20, C35, E22, F37, F43

Foreign Direct Investment, Trade Openness and Economic Growth in Ghana: An Empirical Investigation

This paper investigates the long-run impact of foreign direct investment and trade openness on economic growth in Ghana (1970–2011) within the framework of the endogenous growth literature. Adopting the autoregressive distributed lag bounds testing approach to cointegration the results suggest that the interaction of foreign direct investment and exports has been crucial in fostering growth, thus validating the famous Bhagwati hypothesis. From a policy oriented point of view, the study recommends the channeling of foreign direct investment to export-oriented sectors and the promotion of export-led growth strategies in long-term development plans.

Foreign Direct Investment: Rule of Law and Corruption

AbstractI present a simple model of two representative firms embedded in an environment of institutionalized government corruption. One firm has access to foreign direct investment, but that access is limited by the quality of rule of law in the economy. I use the model to explore the question, addressed in recent economic literature, of whether or not foreign direct investment reduces corruption. I show that corruption may increase or decrease depending on the interaction of foreign direct investment and rule of law. Further, I show that, under certain circumstances, the corrupt governmental bureaucracy may increase corrupt revenue by increasing the quality of legal protection.

Bounds testing approach to cointegration: An examination of the impact of foreign direct investment and trade on growth in Saudi Arabia, 1970-2010

It is widely recognized that trade and foreign direct investment (FDI) inflows are important factors in long-term economic growth. Trade openness enhances skills through the adoption of imported superior production technology and innovative processes, and thus exerts a positive and significant impact on economic growth. Similarly, FDI augments and stimulates domestic investment, enhances technology transfer, increases export capacity and foreign exchange earnings, and thus promotes capital formation and long-run growth. This paper examined the empirical relationship between economic growth on one hand and trade and FDI flows on the other hand for Saudi Arabia during the last four decades (1970-2010). The autoregressive distributed lag (ARDL) methods to cointegration and the associated error correction model (ECM) are adopted. The results suggest that human capital, government expenditure, trade openness and infrastructure are important determinants of long run growth in Saudi Arabia. In contrast, FDI together with domestic private investment has impacted negatively on real gross domestic product (GDP). This is attributed partly to the dominant role of the public sector in the economy emanating from the huge oil resources, thereby leaving little room for the domestic and foreign private investment to play their role in the economy, and partly to the concentration of FDI in unproductive sectors. Nonetheless, the interaction of FDI either with government expenditure or with domestic investment could impact positively on growth. Efforts should therefore focus on enhancing the integration between these factors on long-term growth. Privatization, economic liberalization, and diversification measures are expected to provide real opportunities for domestic and foreign investment to play an important role in economic activity and growth. Key words: Saudi Arabia, FDI, unit roots, ARDL cointegration, ECM, trade.

Foreign Direct Investment, Rule of Law and Corruption

I present a simple model of two representative firms embedded in an environment of institutionalized government corruption. One firm has access to foreign direct investment , but that access is limited by the quality of rule of law in the economy. I use the model to explore the question, addressed in recent economic literature, of whether or not foreign direct investment reduces corruption. I show that corruption may increase or decrease depending on the interaction of foreign direct investment and rule of law. Further, I show that, under certain circumstances, the corrupt governmental bureaucracy may increase corrupt revenue by increasing the quality of legal protection.