Foreign Direct Investment-Growth Nexus in BRICS: How Relevant are the Absorption Capacities?
Keywords:foreign direct investment, economic growth, panel data, BRICS.
This study examined the impact of foreign direct investment on economic growth in BRICS using fixed effects, dynamic ordinary least squares (DOLS) and fully modified ordinary least squares (FMOLS). Panel data ranging from 1991 to 2019 was used for the purposes of this study. The same study also explored whether financial sector and human capital development are necessary absorption capacities that enhance economic growth in BRICS. To a larger extent, foreign direct investment had a negative impact on economic growth in BRICS, consistent with the dependency theory. Financial development was also found to be the channel through which economic growth is enhanced by foreign direct investment. Although the influence was observed to be non-significantly negative, human capital development improved the influence of foreign direct investment on economic growth. BRICS authorities are therefore urged to implement human capital and financial development enhancement policies to ensure significant foreign direct investment’s positive influence on economic growth.
Adams, S. (2009). Foreign direct investment, domestic investment and economic growth in sub-Saharan Africa. Journal of Policy Modeling, 31(6), 939-949. http://dx.doi.org/10.1016/j.jpolmod.2009.03.003
Adarkwa, M. A. (2015). Impact of remittances on economic growth: Evidence from selected West African countries (Cameroon, Cape Verde, Nigeria and Senegal). African Human Mobility Review, 1(2), 177-200. http://dx.doi.org/10.14426/ahmr.v1i2.741
Adeoye, A. (2007). Macro-Economic Level Corporate Governance and FDI in Emerging Markets: Is There a Close Relationship? (A Dissertation Thesis ), King’s College London. Retrieved from https://ssrn.com/abstract=1120816
Amin, S. (1974). Accumulation on a world scale: A critique of the theory of underdevelopment. New York: Monthly Review Press.
Awolusi, O. D., & Adeyeye, O. P. (2016). Impact of foreign direct investment on economic growth in Africa. Problems and Perspectives in Management, 14(2), 289-297. http://dx.doi.org/10.21511/ppm.14(2-2).2016.04
Aye, G. C., & Edoja, P. E. (2017). Effect of economic growth on CO2 emission in developing countries: Evidence from a dynamic panel threshold model. Cogent Economics & Finance, 5(1), 1379239. http://dx.doi.org/10.1080/23322039.2017.1379239
Ayenew, B. B. (2022). The effect of foreign direct investment on the economic growth of Sub-Saharan African countries: An empirical approach. Cogent Economics & Finance, 10(1), 1-12. http://dx.doi.org/10.1080/23322039.2022.2038862
Azam, M., & Ahmed, A. M. (2014). Role of human capital and foreign direct investment in promoting economic growth: Evidence from Commonwealth of Independent States. Journal of Economic Studies (Glasgow, Scotland), 41(6), 434-449.
Baharumshah, A. Z., & Almasaied, S. W. (2009). Foreign Direct Investment and Economic Growth in Malaysia: Interactions with Human Capital and Financial Deepening. Emerging Markets Finance and Trade, 45(1), 90-102. http://dx.doi.org/10.2753/REE1540-496X450106
Baiashvili, T., & Gattini, L. (2020). Impact of FDI on economic growth : the role of country income levels and institutional strength: European Investment Bank. http://dx.doi.org/10.2867/846546
Bailliu, J. N. (2000). Private Capital Flows, Financial Development, and Economic Growth in Developing Countries. Ottawa, Ontario, Canada: International Department Bank of Canada.
Baltagi, B. H., Demitriades, P. O., & Law, S. H. (2009). Financial development, openness and institutions: Evidence from panel data. Journal of Development Economics, 89(2), 285-296. http://dx.doi.org/10.1016/j.jdeveco.2008.06.006
Bekere, B., & Bersisa, M. (2018). Impact of Foreign Direct Investment on Economic Growth in Eastern Africa. In A. Heshmati (Ed.), Determinants of Economic Growth in Africa (pp. 95-124). Cham: Springer International Publishing. http://dx.doi.org/10.1007/978-3-319-76493-1_4
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. http://dx.doi.org/https://doi.org/10.1016/S0022-1996(97)00033-0
Chaudhury, S., Nanda, N., & Tyagi, B. (2020). Impact of FDI on economic growth in South Asia: Does nature of FDI matters? Review of Market Integration, 12(1-2), 51-69. http://dx.doi.org/10.1177/0974929220969679
Coe, D. T., & Helpman, E. (1995). International research and development spillovers. European Economic Review, 39(5), 859-887. http://dx.doi.org/10.1016/0014-2921(94)00100-E
Denisia, V. (2010). Foreign direct investment theories: An overview of the main theories. European Journal of Interdisciplinary, 2(2), 104-110.
Dinh, T. T.-H., Vo, D. H., The Vo, A., & Nguyen, C. N. (2019). Foreign direct investment and economic growth in the short run and long run: Empirical evidence from developing countries. Journal of Risk and Financial Management, 12(4), 1-11. http://dx.doi.org/10.3390/jrfm12040176
Fedderke, J., & Garlick, R. (2008). Infrastructure development and economic growth in South Africa: A review of the accumulated evidence. Retrieved from https://EconPapers.repec.org/RePEc:rza:wpaper:12
Forte, R., & Moura, R. (2013). The effects of foreign direct investment on the host country’s economic growth: Theory and empirical evidence. The Singapore Economic Review, 58(3), 1-13. http://dx.doi.org/10.1142/S0217590813500173
Fu, X., Pietrobelli, C., & Soete, L. (2011). The role of foreign technology and indigenous innovation in the emerging economies: Technological change and catching up. World Development, 39(7), 1204-1212. http://dx.doi.org/10.1016/j.worlddev.2010.05.009
Gochero, P., & Boopen, S. (2020). The effect of mining foreign direct investment inflow on the economic growth of Zimbabwe. Journal of Economic Structures, 9(54), 1-17. http://dx.doi.org/10.1186/s40008-020-00230-4
Gudaro, A. M., Chhapra, I. U., & Sheikh, S. A. (2012). Impact of foreign direct investment on economic growth: A case study of Pakistan. Journal of Management and Social Sciences, 8(2), 22-30. http://dx.doi.org/10.46745/ilma.jbs.2012.08.02.03
Gui-Diby, S. L. (2014). Impact of foreign direct investments on economic growth in Africa: Evidence from three decades of panel data analyses. Research in Economics, 68(3), 248-256. http://dx.doi.org/10.1016/j.rie.2014.04.003
Hart, O. (1983). The market mechanism as an incentive scheme. The Bell Journal of Economics, 14(2), 366-382. http://dx.doi.org/10.2307/3003639
Im, K. S., Pesaran, M. H., & Shin, Y. (2003). Testing unit roots in heterogeneous panels. Journal of Econometrics, 115(1), 53-74. http://dx.doi.org/10.1016/S0304-4076(03)00092-7
Koojaroenprasit, S. (2012). The impact of foreign direct investment on economic growth: A case study of South Korea. International Journal of Business and Social Science, 3(21), 8-19.
Kulu, E., Mensah, S., & Mike Sena, P. (2021). Effects of foreign direct investment on economic growth in Ghana: The role of institutions. Economics of Development, 20(1), 23-34. http://dx.doi.org/10.21511/ed.20(1).2021.03
Lean, H. H. (2008). The Impact of Foreign Direct Investment on the Growth of the Manufacturing Sector in Malaysia. International Applied Economics and Management Letters, 1(1), 41-45.
Levin, A., Lin, C.-F., & James Chu, C.-S. (2002). Unit root tests in panel data: asymptotic and finite-sample properties. Journal of Econometrics, 108(1), 1-24. http://dx.doi.org/10.1016/S0304-4076(01)00098-7
Mahembe, E., & Odhiambo, N. M. (2014). Foreign direct investment and economic growth: A theoretical framework. Journal of Governance and Regulation, 3(2), 63-70. http://dx.doi.org/10.22495/jgr_v3_i2_p6
Makhoba, B. P., & Zungu, L. T. (2021). Foreign direct investment and economic growth in South Africa: Is there a mutually beneficial relationship? African Journal of Business and Economic Research, 16(4), 101-115. http://dx.doi.org/10.31920/1750-4562/2021/v16n4a5
Mamingi, N., & Martin, K. (2018). Foreign direct investment and growth in developing countries: Evidence from the countries of the Organization of Eastern Caribbean States. CEPAL Review, 2018(124), 79-98. http://dx.doi.org/10.18356/e270b670-en
Mboko Ibara, S. B. (2020). Effect of foreign direct investments on economic growth in CEMAC zone: Role of human capital. Modern Economy, 11, 2122-2144. http://dx.doi.org/10.4236/me.2020.1112140
McKinnon, R. I. (1973). Money and Capital in Economic Development. Washington DC: The Brookling Institution.
Mehdi, B. (2011). Studying the effect of foreign direct investment on economic growth in greater and traditional Middle East countries. Economic Analysis, 45(3-4), 35-43.
Meyer, D., & Shera, A. (2017). The impact of remittances on economic growth: An econometric model. Economía, 18(2), 147-155. http://dx.doi.org/10.1016/j.econ.2016.06.001
Moudatsou, A. (2003). Foreign direct investment and economic growth in the European Union. Journal of Economic Integration, 18(4), 689-707. http://dx.doi.org/10.11130/jei.2003.18.4.689
Nguyen, C. H. (2020). The impact of foreign direct investment, aid and exports on economic growth in Vietnam, The Journal of Asian Finance. The Journal of Asian Finance, Economics and Business, 7(10), 581-589. http://dx.doi.org/10.13106/JAFEB.2020.VOL7.NO10.581
Pandya, V., & Sisombat, S. (2017). Impacts of foreign direct investment on economic growth: Empirical evidence from Australian economy. International Journal of Economics and Finance, 9(5), 121-131. http://dx.doi.org/10.5539/ijef.v9n5p121
Pegkas, P. (2015). The impact of FDI on economic growth in Eurozone countries. The Journal of Economic Asymmetries, 12(2), 124-132. http://dx.doi.org/10.1016/j.jeca.2015.05.001
Pelinescu, E. (2015). The impact of human capital on economic growth. Procedia Economics and Finance, 22, 184-190. http://dx.doi.org/10.1016/S2212-5671(15)00258-0
Peter, A., & Bakari, I. H. (2018). Impact of population growth on economic growth in Africa: A dynamic panel data approach (1980-2015). Pakistan Journal of Humanities and Social Sciences, 6(4), 412-427. http://dx.doi.org/10.52131/pjhss.2018.0604.0055
Romer, P. (1986). Increasing returns and long run economic growth. Journal of Political Economy, 94(5), 1002-1037. http://dx.doi.org/10.1086/261420
Sachs, J. D. (2008). Common Wealth: Economics for a crowded planet. New York: Penguin Books.
Sanchez-Robles, B., & Bengoa-Calvo, M. (2002). Foreign Direct Investment, Economic Freedom and Growth: New Evidence from Latin-America (Vol. 4): University of Cantabria. http://dx.doi.org/10.2139/ssrn.353940
Schumpeter, J. A. (1911). The Theory of Economic Development. Cambridge: Harvard University Press.
Shahbaz, M., & Rahman, M. M. (2010). Foreign capital inflows-growth nexus and the role of domestic financial sector: An ARDL co-integration approach for Pakistan. Journal of Economic Research, 15(3), 207-231.
Shaw, E. S. (1973). Financial Deepening in Economic Development. New York: Oxford University Press.
Singh, T. (2010). Does domestic savings cause economic growth? A time series evidence from India. Journal of Policy Modeling, 32(2), 231-253. http://dx.doi.org/10.1016/j.jpolmod.2009.08.008
Solow, R. (1956). A contribution to the theory of economic growth. The Quarterly Journal of Economics, 70(1), 65-94. http://dx.doi.org/10.2307/1884513
Soumaré, I., & Tchana Tchana, F. (2015). Causality between FDI and financial market development: Evidence from emerging markets. The World Bank Economic Review, 29(1), S205–S216. http://dx.doi.org/10.1093/wber/lhv015
Stead, R. (2007). Foundation quantitative methods for business. England: Prentice Hall.
Swan, T. (1956). Economic growth and capital accumulation. The Economic Record, 32(2), 334-361. http://dx.doi.org/10.1111/j.1475-4932.1956.tb00434.x
Tanggapan, D., Geetha, C., Mohidin, R., & Vincent, V. (2011). The relationship between economic growth and foreign direct investment in Malaysia: Analysis based on location advantage theory. International Journal of Economics and Management Sciences, 1(2), 24-31.
Tsaurai, K., & Ngcobo, L. (2018). The role of liquidity in the remittances-human capital development nexus in emerging economies. Acta Universitatis Danubius. Œconomica, 14(7), 101-119.
Tshepo, M. (2014). The impact of foreign direct investment on economic growth and employment in South Africa: A time series analysis. Mediterranean Journal of Social Sciences, 5(25), 18-27.
Xie, X., & Wang, H. (2009). On effects of Foreign Direct Investment on Economic Growth. International Business Research, 2(4), 100-108. http://dx.doi.org/10.5539/ibr.v2n4p100
Zain, M. (2019). Impact of foreign direct investment on economic growth of Pakistan. Gyancity Journal of Electronics and Computer Science, 4(2), 1-12. http://dx.doi.org/10.21058/gjecs.2019.42004
Zhang, Y., Li, H., Li, Y., & Zhou, L. (2010). FDI spillovers in an emerging market: The role of foreign firms’ country of origin diversity and domestic firms’ absorption capacity. Strategic Management Journal, 31(9), 969-989. http://dx.doi.org/10.1002/smj.856
How to Cite
Copyright (c) 2022 Kunofiwa Tsaurai
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
All accepted papers are published on an Open Access basis.
The Open Access License is based on the Creative Commons license.
The non-commercial use of the article will be governed by the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License as currently displayed on https://creativecommons.org/licenses/by-nc-nd/4.0
Under the Creative Commons Attribution-NonCommercial-NoDerivatives license, the author(s) and users are free to share (copy, distribute and transmit the contribution) under the following conditions:
1. they must attribute the contribution in the manner specified by the author or licensor,
2. they may not use this contribution for commercial purposes,
3. they may not alter, transform, or build upon this work.