Foreign Direct Investment, External Debt and Economic Growth: Evidence from Some Selected Developing Countries
DOI:
https://doi.org/10.26710/reads.v3i2.170Keywords:
Foreign Direct Investment, External Debt, Economic Growth, Co-integration, CausalityAbstract
Purpose: The aim of this paper is to analyze the relationship between foreign direct investment, external debt and economic growth. The study is based on a sample of 25 region wise selected developing countries. Panel unit root tests suggest that selected variables are stationary at the level of first difference. Using data from 1990 to 2014, results of FMOLS method suggest that the core variables, foreign direct investment and External Debt have significant positive relationship with economic growth. Labor, Gross Domestic Saving and Government expenditures have positive while Gross capital formation exerts negative impacts on economic growth. Moreover, FDI exerts outstanding effects on growth because one unit rise in FDI raise the growth by 4.03 units while one unit rise in external debt upgrade the growth up to 2.13 units. It means that boundaries of selected developing nations are absorbent to FDI than external debt. The results of “Johansen Fisher Panel Co-integration test” reveal that, there exists a long period relationship among all the explained and explanatory variables. In order to investigate the causal relation among selected variables, pair wise granger causality test is employed.
References
Agrawal, G., & Khan, M. A. (2011). “Impact of FDI on GDP: A comparative study of China and India”. International Journal of Business and Management, 6(10), 71.
Agrawal, G. (2013, November). “Foreign direct investment and economic growth in BRICS economies: A panel data analysis”. In Proceedings of 23rd International Business Research Conference (pp. 18-20).
Ahmad, E., &Hamdani, A. (2003).“The role of foreign direct investment in economic growth”.Pakistan economic and social review, 29-43.
Asghar, N., Nasreen, S., &Rehman, H. (2011). “Relationship between FDI and economic growth In Selected Asian countries: A panel data analysis”. Review of Economics & Finance, 84-96.
Bashir, T., Mansha, A., Zulfiqar, R., &Riaz, R. (2014). “Impact of FDI on economy growth: A comparison of South Asian States & China”. European Scientific Journal, 10(1).
Bonga, W. G., Chirowa, F., &Nyamapfeni, J. (2015). “Growth-Debt Nexus: An Examinationof Public Debt Levels and Debt Crisis in Zimbabwe”. IOSR Journal of Economics and Finance(IOSR-JEF), 6(2), 9-14.
Borensztein, E., De Gregorio, J., & Lee, J. W. (1998). “How does foreign direct investment affect economic growth?”. Journal of international Economics, 45(1), 115-135.
Bruton, H. J. (1969). “The two gap approach to aid and development: comment”. The American Economic Review.79(1).
Brecher, R. A., & Alejandro, C. F. D. (1977).“Tariffs, foreign capital and immiserizing growth”.Journal of international Economics, 7(4), 317-322.
Chenery, Hollis B. and Strout, Alan M. (1966).“Foreign Assistance and Economic Development”.American Economic Review, VI (4).
Choong, C. K., Lau, E., Liew, V. K. S., &Puah, C. H. (2010). “Does debts foster economic growth? The experience of Malaysia”. African Journal of Business Management, 4(8), 1564.
Chowdhury, A. R. (2001). “External debt and growth in developing countries: a sensitivity and causal analysis” (No. 2001/95).WIDER Discussion Papers, World Institute for Development Economics (UNU-WIDER).
Clements, B. J., Bhattacharya, R., & Nguyen, T. Q. (2003).“External debt, public investment, and growth in low-income countries”.
Cohen, D. (1995). “Large External Debt and (Slow) Domestic Growth: A TheoreticalAnalysis”, Journal of Economic Dynamics and Control, 19, pp.1141-1163.
De Mello, L. R. (1999). “Foreign direct investment-led growth: evidence from time series and panel Data”. Oxford economic papers, 51(1), 133-151.
Dutt, A. K. (1997). “Dependence And Hysteresis In Post Keynesian Models”. Markets, Unemployment, and Economic Policy, 2, 238.
Eller, M., Haiss, P. R., & Steiner, K. (2005). “Foreign direct investment in the financial sector: theengine of growth for Central and Eastern Europe?”.Vienna University of Economics and BA, Europainstitut Working Papers, (69).
Falki, N. (2009). “Impact of foreign direct investment on economic growth in Pakistan”.International Review of Business Research Papers, 5(5), 110-120.
Farhana, P., & Chowdhury, M. N. M. “Impact of Foreign Debt On Growth In Bangladesh: An Econometrics Analysis”.
Firebaugh, G. (1992). “Growth effects of foreign and domestic investment” .American Journal of Sociology, 105-130.
Frimpong, J.M. and Oteng-Abayie, E.F. (2006). “The impact of external debt on economicgrowth in Ghana: a cointegration analysis”. Journal of Science and Technology, Vol. 26, No. 3,pp.122–131.
Hossain, A., & Hossain, M. K. (2012). Empirical relationship between foreign direct investment and economic output in South Asian countries: A study on Bangladesh, Pakistan and India. International Business Research, 5(1), 9.
Jun, S. (2015). “The Nexus between FDI and Growth in the SAARC Member Countries”. East Asian Economic Integration (JEAI), 19(1), 39-70.
Kasidi, F., and Said, A.M., 2013. “Impact of External Debt on Economic Growth: A Case Study of Tanzania”. Advances in Management & Applied Economics 3 (4), 59-82.
Khachoo, A. Q., & Khan, M. I. (2012). “Determinants of FDI inflows to developing countries: a panel data analysis”.
Lyroudi, K., Papanastasiou, J., and Vamvakidis, A. (2004). “Foreign direct investment and economic growth in transition economies”. South-Eastern Europe Journal of Economics, 2(1),97-110.
Njoupouognigni, M. (2010). “Foreign aid, foreign direct investment and economic growth in sub Saharan Africa: Evidence from pooled mean group estimator (PMG)”. International Journal of Economics and Finance, 2(3), 39.
Pradhan, R. P. P. (2009). “The FDI-led-growth hypothesis in ASEAN-5 countries: Evidence from co integrated panel analysis”. International Journal of Business and Management, 4(12), 153.
Presbitero, A. F. (2008). “The debt-growth nexus in poor countries: A reassessment. Economics: The Open-Access, Open-Assessment E-Journal, 2.
Ram, R., & Zhang, K. H. (2002). “Foreign direct investment and economic growth: Evidence from cross?country data for the 1990s”. Economic Development and Cultural Change, 51(1), 205-215.
Rahman, M. M., Bashar, M. A., &Dey, S. (2012). “External debt and Gross Domestic Product in Bangladesh: a co-integration analysis”. Management Research and Practice, 4(4), 28.
Sheikh, M. R., Abbasi, M. N., & Abbas, A. (2015). “Is External Debt a Boon or Curse? Evidence from Pakistan”.Journal of Managerial Sciences Volume IX Number, 1, 70.
Soydan, A., &Bedir, S. (2015). “External Debt And Economic Growth: Newevidence For An Old Debate”. Journal of Business Economics and Finance, 4(3).
Sulaiman, L. A. and Azeez, B. A., (2012).“Effect of External Debt on Economic Growth of Nigeria”.Journal of Economics and Sustainable Development.Vol.3, No.8.
World Bank (2016). World Development Indicators/ data is available at http://data.worldbank.org/
World Investment Report (WIR). (2011). Global Investment Trends: United Nations Conference on Trade and Development, Geneva.
Zeb, N., Qiang, F., & Rauf, S. (2013).“Role of Foreign Direct Investment in Economic Growth of Pakistan”. International Journal of Economics and Finance, 6(1), 32.
Zakari, Y., & Mohammed, H. (2012). “Does FDI cause economic growth? Evidence from Selected countries in Africa and Asia”.
Zekarias, S. M. (2016). “The Impact of Foreign Direct Investment (FDI) on Economic Growth inEastern Africa: Evidence from Panel Data Analysis”. Applied Economics and Finance, 3(1), 145-160.
