The Impact of FDI Inflows and Outflows on Economic Growth: An Empirical Study of some Developed and Developing Countries
DOI:
https://doi.org/10.26750/paperKeywords:
Foreign direct investment (FDI), Inflows, outflows, Economic Growth, ARDL approach, Panel estimation.Abstract
FDI is an investment including a long-term relationship and reflecting a lasting interest and control of a resident entity in one economy. FDI is a combination of capital, technology, marketing and management. Based on the Neoclassical, Exogenous and modern theories FDI has a positive role in accelerating economic growth and development. Many countries are improving their economy in order to attract FDI.
The main objective of this study is to examine the impact of FDI inflows and outflows on economic growth of developed countries such as (USA, UK and France) and developing countries such as (Malaysia, Turkey and Iran) from (1980 to 2017). To accomplish that, ARDL approach and panel data estimation were used. The empirical findings reveal that the FDI inflows and outflows for developed countries (US and UK) have a positive impact on economic growth (GDP), while the FDI inflows of France have a negative impact. Nevertheless, FDI inflows and outflows for developing countries of (Malaysia, Turkey, and Iran) have a positive impact on economic growth. The result of panel data estimation shows that Fixed effects model is appropriate for estimating the parameters.
In conclusion, Developing countries should diversify their FDI inflows and outflows to cover all the sectors and they should benefit from the developed countries’ experiences with higher impact of FDI on economic growth.
References
AbuDalu, A., Ahmed, E.M., Almasaied, S.W. and Elgazoli, A.I., 2014. The Real Effective Exchange Rate Impact on ASEAN-5 Economic Growth. Int J Econ Manag Sci, 3(174), p.2.
Adhikari, R. and Agrawal, R.K., 2013. An introductory study on time series modeling and forecasting. arXiv preprint arXiv:1302.6613.
Alavinasab, S.M., 2013. Determinants of foreign direct investment in Iran. International Journal of Academic Research in Business and Social Sciences, 3(2), pp.258-269
Al-Shawaf, A.M.K. and Almsafir, M.K., 2016. Economic globalization: role of inward and outward FDI with economic growth-Evidence from Malaysia. Journal of Business and Retail Management Research, 10(2).
Ameer, W. and Xu, H., 2017. THE LONG-RUN EFFECT OF INWARD AND OUTWARD FOREIGN DIRECT INVESTMENT ON ECONOMIC GROWTH: EVIDENCE FROM DEVELOPING ECONOMIES. Review of Innovation and Competitiveness: A Journal of Economic and Social Research, 3(2), pp.5-24.
Asheghian, P., 2004. Determinants of economic growth in the United States: The role of foreign direct investment. The international trade journal, 18(1), pp.63-83.
Azzutti A., 2016. FDI in post- conflict countries: Iraqi case, DOI: 10.13140/RG.2.1.1398.6325.
Baltagi, B., 2008. Econometric analysis of panel data. John Wiley & Sons.
Barauskaite, L., 2012. An analysis of foreign direct investments: inflows and determinants: a study of the nordic and baltic countries (Master's thesis, Universitetet i Agder; University of Agder).
Bode, E. and Nunnenkamp, P., 2011. Does foreign direct investment promote regional development in developed countries? A Markov chain approach for US states. Review of World Economics, 147(2), pp.351-383.
Borensztein, E., De Gregorio, J. and Lee, J.W., 1998. How does foreign direct investment affect economic growth? 1. Journal of international Economics, 45(1), pp.115-135.
Carkovic, M. and Levine, R., 2005. Does foreign direct investment accelerate economic growth?. Does foreign direct investment promote development, 195
Chaudhuri, S. and Mukhopadhyay, U., 2014. Foreign direct investment in developing countries. Dordrecht: Springer. CrossRef Google Scholar.
Chowdhury, A. and Mavrotas, G., 2006. FDI and growth: What causes what?. World economy, 29(1), pp.9-19.
Clark, T.S. and Linzer, D.A., 2015. Should I use fixed or random effects?. Political Science Research and Methods, 3(2), pp.399-408.
Dolado, J.J., Gonzalo, J. and Marmol, F., 2001. Cointegration. A Companion to Theoretical Econometrics, pp.634-654
Erdi̇lek, A., 2005. A comparative analysis of inward and outward FDI in Turkey. Iktisat Isletme ve Finans, 20(233), pp.5-19
Greene, W.H., 2003. Econometric analysis. Pearson Education India..
Habibi, F. and Sharif Karimi, M., 2017. Foreign Direct Investment and Economic Growth: Evidence from Iran and GCC. Iranian Economic Review, 21(3), pp.601-620.
IMF (1993), "Balance of Payments Manual" Fifth Edition (Washington, D.C., International Monetary Fund, 1993)
IMF (2017), Country Report Iraq; No. 17/251.
Jirata, M.T., 2018. Estimation of Panel Data Regression Models with Individual Effects (Doctoral dissertation, JKUAT-PAUSTI).
Kollar M., 2013. Robust Estimation of Linear Mixed Models, Diss. ETH No. 20997
Kornecki, L., 2014. Performance of Inward and Outward US Foreign Direct Investment during Recent Financial Crises. In Managerial Issues in Finance and Banking (pp. 21-50). Springer, Cham.
Luu, H.N., Trinh, V.Q. and Vu, N.H., 2017. Does Foreign Direct Investment Accelerate the Vietnamese Economic Growth?: A Simultaneous Equations Approach. The Journal of Developing Areas, 51(4), pp.331-345
Maddala, G. S., & Lahiri, K., 1992. Introduction to econometrics (Vol. 2). New York: Macmillan.
OECD (1996) Benchmark definition of foreign direct investment (3rd Edition). Paris, France
OECD (2017) International trade, foreign direct investment, and global value chains. Trade and investment statistics Note. United Kingdom.
OECD Report (2002) foreign direct investment for development: maximizing benefits, minimizing Costs. Organization for Economic Co-operation and Development, Paris
Oyin, O., 2015. The effect of foreign direct investment: Case study Nigeria. University of Oulu, faculty of economics and business administration
Pedace, R., 2013. Econometrics for dummies. John Wiley & Sons.
Pesaran, M.H., Shin, Y. and Smith, R.J., 2001. Bounds testing approaches to the analysis of level relationships. Journal of applied econometrics, 16(3), pp.289-326.
Rafat, M., 2018. The Interactive Relationship between Economic Growth and Foreign Direct Investments (FDI): A VAR Analysis in Iran. Iranian Economic Review, 22(1), pp.163-185.
Ridzuan, A.R., Khalid, M.W., Zarin, N.I., Razak, M.I.M., Ridzuan, A.R., Ismail, I. and Norizan, N., 2018. The Impact of Foreign Direct Investment, Domestic Investment, Trade Openness And Population on Economic Growth: Evidence from Asean-5 Countries. International Journal of Academic Research in Business and Social Sciences, 8(1), pp.128-143.
Sheytanova, T., 2015. The Accuracy of the Hausman Test in Panel Data: a Monte Carlo Study.
Simionescu, M., 2018. The impact of Brexit on the UK inwards FDI. Economics, Management and Sustainability, 3(1), pp.6-20.
Taşpınar, N., 2011. Foreign Direct Investment, Domestic Savings and Economic Growth: The Case of Turkey (Doctoral dissertation, Eastern Mediterranean University (EMU).
UNCTAD (1998). Foreign direct investment in Africa: Performance and potential
UNCTAD (2005). United Nations Conference on Trade and Development, World Investment Report 2005, New York and Geneva. United Nations
UNCTAD (2013) the world investment report: global value chains: investment and trade for industries and Development. United Nations, New York
UNCTAD (2018) the world investment report: Investment and new industrial polices. United Nations, Geneva.
UNCTAD(2007) world investment report: transnational corporations, extractive Development. United Nations, New York/Geneva
Vetter, S., Böttcher, B. and Hoffmann, R., 2014. Recent trends in FDI activity in Europe. Deutsche Bank Research, pp.1-11
