Ditch or Bump? Foreign Direct Investment and Economic Growth: Evidence from the OECD Economies

Document Type: Original Research

Authors

1 School of Management, Jiangsu University, Zhenjiang 212013, PR China

2 Department of Human Resource and Organisational Development, KNUST School of Business, Kwame Nkrumah University of Science and Technology, Ashanti, Ghana

Abstract

Foreign Direct Investment (FDI) has a long standing history of contributing to economic growth of nations. Nations invest and get invested, however, focus has always been on investing or been invested but the impact created as a result of the two on the economies have not yet been examined. Whether the impact of the difference creates ditch or bump get investigated in this research work, employing an extended Cobb Douglas function. Our estimation methods were Fully Modified Least Square (FMOLS) and Auto-regressive Distributed Lag Models (ARDL). We conducted a preliminary test to avoid spurious regression results by using ARDL Bound test, Augmented Dickey-Fuller and Phillips-Perron unit root test for cointegration and stationerity test. We found that some economies saw ditches with the difference whilst others experienced bumps, however, others felt no impact with the difference.

Keywords


Abdelbary, I., & Benhin, J. (2018). Governance, capital and economic growth in the Arab Region. The Quarterly Review of Economics and Finance.
Ahmed, E. M. (2012). Are the FDI inflow spillover effects on Malaysia's economic growth input driven? Economic Modelling, 29(4), 1498-1504.
Ahsan, H., & Haque, M. E. (2017). Threshold effects of human capital: Schooling and economic growth. Economics Letters, 156, 48-52.
Alvarado, R., Iñiguez, M., & Ponce, P. (2017). Foreign direct investment and economic growth in Latin America. Economic Analysis and Policy, 56, 176-187.
Aniţa, S., Capasso, V., Kunze, H., & La Torre, D. (2013). Optimal control and long-run dynamics for a spatial economic growth model with physical capital accumulation and pollution diffusion. Applied Mathematics Letters, 26(8), 908-912.
Arnold, J., & Javorcik, B. (2009). Gifted kids or pushy parents? Foreign direct investment and plant productivity in Indonesia. Journal of International Economics, 79(1), 42-53.
Bane, J. (2018). Human Capital and Economic Growth in Developing Countries: Evidences from Low and Middle Income African Countries. In A. Heshmati (Ed.), Determinants of Economic Growth in Africa (pp. 237-258). Cham: Springer International Publishing.
Barcenilla-Visús, S., & López-Pueyo, C. (2018). Inside Europe: human capital and economic growth revisited. Empirica, 45(4), 821-847.
Battisti, M., Del Gatto, M., & Parmeter, C. F. (2018). Labor productivity growth: disentangling technology and capital accumulation. Journal of Economic Growth, 23(1), 111-143.
Baudino, M. (2016). The impact of human and physical capital accumulation on Chinese growth after 1994: A spatial econometric approach. World Development Perspectives, 2, 11-16.
Belloumi, M. (2014). The relationship between trade, FDI and economic growth in Tunisia: An application of the autoregressive distributed lag model. Economic Systems, 38(2), 269-287.
Boikos, S., Bucci, A., & Stengos, T. (2013). Non-monotonicity of fertility in human capital accumulation and economic growth. Journal of Macroeconomics, 38, 44-59.
Bucci, A., Eraydın, L., & Müller, M. (2018). Dilution Effects, Population Growth and Economic Growth under Human Capital Accumulation and Endogenous Technological Change. Journal of Macroeconomics.
Čadil, J., Petkovová, L., & Blatná, D. (2014). Human Capital, Economic Structure and Growth. Procedia Economics and Finance, 12, 85-92.
Chen, J., Wang, Y., Wen, J., Fang, F., & Song, M. (2016). The influences of aging population and economic growth on Chinese rural poverty. Journal of Rural Studies, 47, 665-676.
Chen, S., & Kung, J. K.-s. (2016). Of maize and men: the effect of a New World crop on population and economic growth in China. Journal of Economic Growth, 21(1), 71-99.
Ciesielska, D., & Kołtuniak, M. (2017). Outward foreign direct investments and home country’s economic growth. Physica A: Statistical Mechanics and its Applications, 482, 127-146.
Cleeve, E. A., Debrah, Y., & Yiheyis, Z. (2015). Human Capital and FDI Inflow: An Assessment of the African Case. World Development, 74, 1-14.
Delgado, M. S., & McCloud, N. (2017). Foreign direct investment and the domestic capital stock: the good–bad role of higher institutional quality. Empirical Economics, 53(4), 1587-1637.
Dutta, N., Kar, S., & Saha, S. (2017). Human capital and FDI: How does corruption affect the relationship? Economic Analysis and Policy, 56, 126-134.
Edwards, J. A., Romero, A. A., & Madjd-Sadjadi, Z. (2016). Foreign direct investment, economic growth, and volatility: a useful model for policymakers. Empirical Economics, 51(2), 681-705.
Fadhil, M. A., & Almsafir, M. K. (2015). The Role of FDI Inflows in Economic Growth in Malaysia (Time Series: 1975-2010). Procedia Economics and Finance, 23, 1558-1566.
Fahimi, A., Akadiri, S. S., Seraj, M., & Akadiri, A. C. (2018). Testing the role of tourism and human capital development in economic growth. A panel causality study of micro states. Tourism Management Perspectives, 28, 62-70.
Fan, H., Lin, F., & Tang, L. (2018). Minimum Wage and Outward FDI from China. Journal of Development Economics, 135, 1-19.
Faria, H. J., Montesinos-Yufa, H. M., Morales, D. R., & Navarro, C. E. (2016). Unbundling the roles of human capital and institutions in economic development. European Journal of Political Economy, 45, 108-128.
Feeny, S., Iamsiraroj, S., & McGillivray, M. (2014). Growth and Foreign Direct Investment in the Pacific Island countries. Economic Modelling, 37, 332-339.
Fleisher, B., Li, H., & Zhao, M. Q. (2010). Human capital, economic growth, and regional inequality in China. Journal of Development Economics, 92(2), 215-231.
Gnangnon, S. K. (2018). Effect of multilateral trade liberalization on foreign direct investment outflows amid structural economic vulnerability in developing countries. Research in International Business and Finance, 45, 15-29.
Hansson, Å., & Olofsdotter, K. (2014). Labor Taxation and FDI Decisions in the European Union. Open Economies Review, 25(2), 263-287.
Hendrickson, J. R., Salter, A. W., & Albrecht, B. C. (2018). Preventing plunder: Military technology, capital accumulation, and economic growth. Journal of Macroeconomics, 58, 154-173.
Kendrick, J. W. (1994). Total capital and economic growth. Atlantic Economic Journal, 22(1), 1-18.
Konara, P., & Wei, Y. (2018). The complementarity of human capital and language capital in foreign direct investment. International Business Review.
Kottaridi, C., & Stengos, T. (2010). Foreign direct investment, human capital and non-linearities in economic growth. Journal of Macroeconomics, 32(3), 858-871.
Lee, J. (2009). Trade, FDI, and productivity convergence: A dynamic panel data approach in 25 countries. Japan and the World Economy, 21(3), 226-238.
Liu, Z. (2008). Foreign direct investment and technology spillovers: Theory and evidence. Journal of Development Economics, 85(1), 176-193.
Magombeyi, M. T., & Odhiambo, N. M. (2018). Dynamic impact of fdi inflows on poverty reduction: Empirical evidence from South Africa. Sustainable Cities and Society, 39, 519-526.
Murphy, R. H., & O’Reilly, C. (2018). Applying panel vector autoregression to institutions, human capital, and output. Empirical Economics.
Nakamura, K., Kaihatsu, S., & Yagi, T. (2018). Productivity improvement and economic growth: Lessons from Japan. Economic Analysis and Policy.
Noorbakhsh, F., Paloni, A., & Youssef, A. (2001). Human Capital and FDI Inflows to Developing Countries: New Empirical Evidence. World Development, 29(9), 1593-1610.
Ogundari, K., & Awokuse, T. (2018). Human capital contribution to economic growth in Sub-Saharan Africa: Does health status matter more than education? Economic Analysis and Policy, 58, 131-140.
Ono, T., & Uchida, Y. (2018). Human capital, public debt, and economic growth: A political economy analysis. Journal of Macroeconomics, 57, 1-14.
Pablo-Romero, M. d. P., & Sánchez-Braza, A. (2015). Productive energy use and economic growth: Energy, physical and human capital relationships. Energy Economics, 49, 420-429.
Pegkas, P. (2015). The impact of FDI on economic growth in Eurozone countries. The Journal of Economic Asymmetries, 12(2), 124-132.
Prados de la Escosura, L., & Rosés, J. R. (2010). Human capital and economic growth in Spain, 1850–2000. Explorations in Economic History, 47(4), 520-532.
Satti, S. L., Farooq, A., Loganathan, N., & Shahbaz, M. (2014). Empirical evidence on the resource curse hypothesis in oil abundant economy. Economic Modelling, 42, 421-429.
Sirin, S. M. (2017). Foreign direct investments (FDIs) in Turkish power sector: A discussion on investments, opportunities and risks. Renewable and Sustainable Energy Reviews, 78, 1367-1377.
Su, Y., & Liu, Z. (2016). The impact of foreign direct investment and human capital on economic growth: Evidence from Chinese cities. China Economic Review, 37, 97-109.
Teixeira, A. A. C., & Tavares-Lehmann, A. T. (2014). Human capital intensity in technology-based firms located in Portugal: Does foreign ownership matter? Research Policy, 43(4), 737-748.
Temiz, D., & Gökmen, A. (2014). FDI inflow as an international business operation by MNCs and economic growth: An empirical study on Turkey. International Business Review, 23(1), 145-154.
Tuan, C., Ng, L. F. Y., & Zhao, B. (2009). China's post-economic reform growth: The role of FDI and productivity progress. Journal of Asian Economics, 20(3), 280-293.
Tzeremes, N. G. (2014). The effect of human capital on countries’ economic efficiency. Economics Letters, 124(1), 127-131.
Van Cauwenberg, J., Loyen, A., Lakerveld, J., Cardon, G., De Craemer, M., Gheysen, F., & Chastin, S. F. M. (2018). Differential influences of population densification and economic growth on Europeans' physical activity and sitting time. Cities, 82, 141-149.
Vechiu, N., & Makhlouf, F. (2014). Economic integration and specialization in production in the EU27: does FDI influence countries’ specialization? Empirical Economics, 46(2), 543-572.
Vu, T. B., Gangnes, B., & Noy, I. (2008). Is foreign direct investment good for growth? Evidence from sectoral analysis of China and Vietnam. Journal of Asia Pacific Economy, 13 (4), 542-562.
Wolff, G. B. (2007). Foreign Direct Investment in the Enlarged EU: Do Taxes Matter and to What Extent? Open Economies Review, 18(3), 327-346.
X. Liu, C. Shu, & Sinclair, P. (2009). Trade, foreign direct investment and economic growth in Asian economies. Applied Economics, 41(13), 1603-1612.
Zallé, O. (2018). Natural resources and economic growth in Africa: The role of institutional quality and human capital. Resources Policy.