foreign direct investment and growth in india a cointegration approach pdf

Foreign Direct Investment And Growth In India A Cointegration Approach Pdf

File Name: foreign direct investment and growth in india a cointegration approach .zip
Size: 2526Kb
Published: 06.12.2020

The growth of international business facilitates foreign direct investment FDI and is driven by economic and technological factors. While foreign investors benefit by utilizing their assets and resources efficiently through FDI, the recipients benefit by acquiring technologies and by getting involved in international production and trade networks. It is now widely recognized that economic uncertainties compel a firm to look for markets in other geographical locations.

Foreign direct investment and economic growth in South America

Foreign direct investment and institutional stability: who drives whom? Ishaq Mustapha Akinlaso 1. Purpose: The purpose of this paper is to examine the relationship between foreign direct investment FDI flows and institutional stability. The focus country is Canada. It is one of the few countries where the economy remained relatively stable compared to other economies during the Global Financial Crisis. It is crucial for Canada to determine the optimal level of institutional development to attract more FDI and sustain the sound financial stability in future.

Findings: The key finding of this work is that FDI and institutional stability are cointegrated in the long run. The error correction model of ARDL shed light on institutional stability being an exogenous variable, and FDI is an endogenous variable. Institutional stability affects FDI, as it is exogenous.

In some cases, the relationship does not always hold true. This study will fix the gap in the literature by investigating the relationship between FDI and institutional stability of Canada. To further add, from the period of to , about 55 countries adopted 1, institutional policy changes, with the goal of creating a more favourable environment for foreign investors Demir, Prior studies indicate that proper institutions encourage private investments, improve the efficiency of the economic system and encourage economic growth Acemoglu et al.

Institutions play a crucial role in disciplining the behaviour of economic agents, thus encouraging setting rules and limit opportunism and build transactional trust in financial transactions, and ultimately enhance the confidence of foreign investor and FDI inflows Ahmad and Ahmed, In a study by Makki and Somwaru , the results pointed to FDI and exports positively impacting economic growth. The study looked at 66 developing countries from to Wang and Meng found that it is more critical to higher-income countries, whereas international trade is more critical for lower-income countries Tekin, On the other hand, other studies were not able to find a direct link between FDI and institutional development Buchanan et al.

In another study by Harms and Ursprung , political and civil liberties were found to be factors that attracted FDI as opposed to institutional aspects Ahmad and Ahmed, As such, it is inconclusive as to if institutional stability plays a fundamental role in encouraging FDI. Furthermore, there is theoretical literature that suggesting FDI can adversely impact economic growth. It is because the growth accelerating the effect of FDI is based on the assumption that this does not crowd out domestic investment Tekin, There is also theoretical literature that supports the notion of institutional stability encouraging FDI.

For instance, the Douglas North approach discusses how institutions play a crucial role in economic growth. Even from a theoretical perspective, it seems that the literature is inconclusive on the exact role that institutional stability plays, and how other factors react to it.

This paper will focus on Canada, because in recent years it is one of the economies that have performed exceptionally well, despite the global financial crisis in the past decade. Despite its proximity to the USA economy, none of the banks in Canada failed. Unlike other central banks, the Bank of Canada did not resort to quantitative easing during this time. It can be attributed to proper regulation, and the willingness of business and the government to react decisively. It is a real-world, real-time example of a banking system in a medium-sized, advanced capitalist economy that worked.

Understanding why the Canadian system survived could be a key to making the rest of the world equally robust". While this paper will not provide the answer to avoiding a future crisis, it will provide some insight that can benefit policymakers around the world.

The primary objective of this paper is to explore the long run impact of institutional quality on FDI concerning the Canadian economy by applying the auto-regressive distributed lag ARDL cointegration approach. FDI is a critical part of economic growth and knowing what drives this is necessary for policymakers to adopt strategies to ensure the correct balance of FDI that should maintain.

While the focus variables in this study are FDI and institutional stability, other macroeconomic variables were also included in the model, namely, gross national product GNP , inflation and exports. These variables were chosen based on similar studies that have been conducted by other authors Ahmad and Ahmed, ; Asif and Majid, ; Aziz, ; Kurul, The key findings of this paper are that the variables are cointegrated, indicating that there is a long run theoretical relationship between them.

The error correction model ECM shed light on institutional stability being an exogenous variable, and FDI is an endogenous variable.

As such, for policymakers to attract more FDI into Canada, they must focus on the stability level of institutions, which will, in turn, attract FDI. The paper is divided into a total of five sections. Section 2 in this paper discusses the literature review, which reviews both theoretical and empirical controversies on the issue. Sections 3 and 4 explain the methodology and empirical results and the discussion.

Finally, Section 5 concludes providing recommendations for policymakers. Institutional quality is crucial to attract FDI Kurul, Good governance of a country, for instance, political stability, regulatory quality and control of corruption are the prerequisite for attracting FDI inflow Kaufmann et al. Weak institutional quality is an obstacle for FDI Aziz, The literature from previous studies shows that there is a link between institutional quality and FDI Ahmad and Ahmed, ; Asif and Majid, ; Aziz, Some studies found a positive relationship between institutional quality and FDI Aziz, ; Buchanan et al.

Aziz investigated the influence of institutional quality on FDI by considering Arab countries between and and found a substantial positive association between them. Kurul examines the effect of institutional quality on FDI by using panel threshold methodology and considers the developing countries.

The author finds a positive relationship between institutional quality and FDI after attaining a certain threshold level of institutional quality. Besides, Buchanan et al. However, poor institutional quality, which includes factors such as corruption, bureaucratic delays and weak law and order governance; adversely impact FDI in developing countries Ahmad and Ahmed, According to Globerman and Shapiro , better institutional quality encourages FDI inflows, as it makes it easier for multinational corporations to invest abroad.

Corruption was found to be the most significant deterrent to FDI, according to a study done by Brunetti and Weder On the other hand, not all studies show that there is a strong link between FDI and institutional stability.

In a study conducted by Wheeler and Mody , they were not able to find any relationship between the two. It is possible that institutional stability has an indirect impact on FDI since it affects factors such as human capital and quality of public facilities, which affect FDI.

A study by Jun and Singh concluded that institutions do not have a substantial impact in promoting FDI. Besides, the Douglas North approach discusses the role of institutions in economic growth and investment Faundez, According to North, institutions affect economic growth by increasing or decreasing transaction and production costs. When institutions are inefficient or unstable, that contributes to higher production costs Ahmad and Ahmed, There are three critical reasons for this, consisting of ownership advantage, internalisation advantage, and locational advantage.

However, there is also the concern of crowding out domestic investment Tekin, As such, it is not just institutions that affect FDI, but also ensuring there is a healthy balance of domestic and international investments. Further, Bevan and Estrin found that labour cost, market size and complexity are significant determining factors for FDI inflows into European transitions economies.

Developed countries are known to push for more conditionality requirements when it comes to dealing with foreign governments concerning trade policies, transparency, law, and the business environment Ahmad and Ahmed, An example of this is the US Foreign Corrupt Practices Act, banning the US firms from bribing foreign governments, even if that law does not exist abroad, for instance, in India or China.

Such legislation does encourage developing countries to adopt the standards of developed nations Demir, Some studies suggest that institutional development is one of the sources of competitive advantage affecting the long-run growth of a country Demir, Most of the previous studies consider cross-country analysis of institutional stability and FDI Aziz, ; Demir, ; Kurul, In the cross-country regression, it is assumed that the data are homogeneous, which is a restrictive assumption.

Besides, institutional aspects differ country to country because of the difference in regulation, geography and other political aspects and the results for cross country study could be misleading Ahmad and Ahmed, ; Deaton, The paper will contribute to the literature by investigating the relationship between institutional stability and FDI and incorporating ARDL cointegration approach. Previous studies focus on the linear relationship between FDI and other factors, for instance, infrastructure, financial development and so on.

To be the best of our knowledge, there are no studies that investigate the impact of institutional stability on FDI by considering the case of Canada. The ARDL is the appropriate approach to find out the suitable level of institutional stability which leads to a positive or negative effect on FDI and help regulators and policymakers to decide the optimal level for institutional stability which will lead to maximising FDI growth.

The paper has undertaken a humble attempt to investigate the understudied area and help the policymakers to take a strategic decision on institutional stability and attract more FDI in the economy. This paper aims to analyse the relationship between institutional quality and FDI. However, simple bivariate studies suffer omission bias Appiah, ; Caporale and Pittis, Hence other variables were included in our model to reduce omission bias and better reflect causality.

The study employed annual time series data spanning the period from to , consisting of a total of 33 observations. The functional form of the model is as follows [ equation 1 ]:.

This study used the "ARDL co-integration approach to testing the existence of a long-term relationship with the lagged levels of the variables. It helps to identify the dependent variables endogenous and the independent variables exogenous. More so, if the relationship between the variables is long term, then the ARDL analysis creates the ECM equation for every variable, which provides information through the estimated coefficient of the error-correction term about the speed at which the dependent variable returns to equilibrium once it is shocked" Shakil et al.

These are tested against the alternative hypothesis of the existence of co-integration. The calculated F-statistics derived from Wald test are compared with Pesaran et al.

If the calculated F-statistics falls below the lower bound critical values, then the study will fail to reject the null hypothesis of the non-existence of a long-run relationship. Moreover, if the calculated F-statistics lies between the lower bound and Upper bound of the critical values, then the result is inconclusive. On the other hand, if the calculated F-statistics is higher than the Upper bound critical values, then the paper will reject the null hypothesis non-existence of a long-run relationship.

Once valuing the existence of long-run relationship between variables the next step is to select the optimal lag length by using standard criteria such as Swartz Bayesian SBC or Akaike Information AIC. Only after the test, long run and short run coefficients could be predicted.

ARDL long-run form is exhibited in equation 3 :. The error correction term which was used in the ARDL short-run model to depict the short run dynamics is shown in equation 4 :.

The paper will test the null hypothesis H 0 of the "non-existence of the long-run relationship" against the alternative of "the existence of the long-run relationship". Logarithmic transformations of all variables were calculated to achieve stationarity in variance. After that, the study will begin empirical testing by determining the stationarity of all variables in consideration. Proceeding with the testing of the cointegration later is necessary.

Economic growth and and FDI in ASIA: A panel data approach

This study is an attempt to examine the impact of foreign direct investment on economic growth in Asian countries. We did our analysis in the panel framework during to We also examined the nonlinearities associated with foreign direct investment and exports in the economic growth process of Asian countries under consideration. We find that both foreign direct investment and exports enhance growth process. In addition, labour and capital also play an important role in the growth of Asian countries. Further, nonlinearity effects show that export-led growth is a better option of growth enhancing in Asian developing countries compared with foreign direct investment-led growth.

This study clarifies the role of foreign direct investment FDI compared to foreign loans and domestic savings in short- and long-term economic growth of Indonesia. Data were obtained from World Bank and Bank Indonesia and used in error correction model to explain the linkage between predictors and economic growth. We show that in the short run, the three explanatory variables significantly affect economic growth. In the long run, compared to FDI and foreign loans, domestic savings positively and significantly affect economic growth. This study emphasizes the importance of sustaining domestic savings to maintain the stability of economic fundamentals in the long term.

Skip to search form Skip to main content You are currently offline. Some features of the site may not work correctly. Throughout the last decades, the global economy has been completely sophisticated. It has evolved in an increasingly more and more complicated context, given the mechanism of free trade, free haw of capital and goods; investment has become important for developing countries. In this respect, it is necessary to study the impact of foreign direct investment FDI on the economic growth of the host country, especially in Tunisia. Save to Library.

Request PDF | Foreign Direct Investment and Growth in India: A Cointegration Approach | The two-way link between foreign direct investment.

The effect of mining foreign direct investment inflow on the economic growth of Zimbabwe

Foreign direct investment and institutional stability: who drives whom? Ishaq Mustapha Akinlaso 1. Purpose: The purpose of this paper is to examine the relationship between foreign direct investment FDI flows and institutional stability. The focus country is Canada.

Scientific Research An Academic Publisher. In the period of liberalization and globalization, trade openness and foreign direct investment FDI have developed as major incentives to economic growth and development in developing economies. FDI serves as an important source of funds for domestic investment thus, promoting capital formation in the host country [1].

The purpose of this paper is to investigate the impact of foreign direct investment FDI on economic growth in countries in South America. Additionally, the study explores the causal linkage between FDI and growth in the region. Further, the study employs the vector error correction model VECM to examine the long-run relationship, and the causal nexus between FDI and economic growth in South America for the period —

Должно быть что-то самое простое. Техник в оперативном штабе начал отсчет: - Пять. Четыре. Три. Эта последняя цифра достигла Севильи в доли секунды.

 - В голосе звонившего по-прежнему чувствовалась нерешительность.  - Ну, тогда… надеюсь, хлопот не. - Отлично.

Сдерживая подступившую к горлу тошноту, Беккер успел заметить, что все пассажиры повернулись и смотрят на. Все как один были панки.


Hermenegildo H.

The two-way link between foreign direct investment and growth for India is explored using a structural cointegration model with vector error correction mechanism. Foreign direct investment and growth in India: a cointegration approach References · Citations; Metrics; Reprints & Permissions · PDF.


Marian C.

The study employs the autoregressive distributed lag ARDL approach to examine the relationship between foreign direct investment FDI in the mining sector on the Zimbabwe economy, while controlling for both non-mining FDI and domestic investment.


Leave a comment

it’s easy to post a comment

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>