Effect of Foreign Direct Investment on Economic Growth and Domestic Investment: Evidence from OECD Countries

Gökçeli, Emre; Fidrmuc, Ján; Ghosh, Somnath

doi:10.11118/ejobsat.2022.012

EJOBSAT

2022

DOI: 10.11118/ejobsat.2022.012

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Effect of Foreign Direct Investment on Economic Growth and Domestic Investment: Evidence from OECD Countries

Emre Gökçeli¹,

Ján Fidrmuc²,

Somnath Ghosh³

Abstract: This study assesses the impact of foreign direct investment (FDI) inflows on economic growth and domestic investment in a panel of Economic Co-operation and Development (OECD) countries during the period of 1990-2017 by utilizing the method of fixed-effects and system generalized method of moments (GMM). The findings show that FDI inflows are positively and significantly associated with the economic growth of the host economy. When considering the origin of FDI, we find that FDI from developed countries contri… Show more

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Cited by 4 publications

References 58 publications

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Exploring the optimal threshold of FDI inflows for carbon-neutral growth in Africa

Sarpong,

Boubacar,

Nyantakyi

et al. 2023

Environ Sci Pollut Res

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Exploring the optimal threshold of FDI inflows for carbon-neutral growth in Africa

Sarpong,

Boubacar,

Nyantakyi

et al. 2023

Environ Sci Pollut Res

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Linking regional investments and revenues at the provincial level to investment loan decisions by local government banks in Indonesia

Aswan,

Dahham Sabbar,

Bashir

et al. 2024

Public and Municipal Finance

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This study aims to analyze how two different types of investments (local domestic and foreign direct investments at the provincial level) and revenues (booked by the provincial governments, general allocation funds, special allocation funds, local taxes, and retribution) affect investment loan decisions by local government banks in Indonesia. The study uses panel data applying ordinary least squares and multiple linear regression. Thus, 144 data were sampled from 2013 to 2021 from 16 local government banks out of Java Island in 21 provinces in Indonesia. The study found that local domestic investment at the provincial level affects investment loan decisions by local government banks. In contrast, foreign direct investment did not affect lending decisions, indicating that local domestic investment contributes to the real local economy at the provincial level. Different results were found in provincial revenues in the form of general and special allocation funds, which negatively affected loan investment decisions, possibly due to provincial revenues utilized to cover the financial deficit and capital expenditure spent chiefly on imported goods. Additionally, local taxes at the provincial level also negatively affect investment loan decisions, possibly due to fluctuations in local tax collection during COVID-19. However, the study found that local retribution contributes to predicting loan investment decisions, suggesting revenue collection by the governments considering local economic conditions. The study findings suggest that provincial governments should direct investments that can impact the local economy and spend their revenues on goods and services that can drive local economic growth. AcknowledgmentThe investment loan made by local government banks, which is associated with local investment and revenue, is part of a research grant project from the Economics and Business Faculty of Hasanuddin University. This project is a result of collaboration with national and international researchers. In carrying out this research, some inputs from people working in local government banks, financial service authorities, and provincial and regency governments are addressed.Thanks to Ahmadi Usman for secondary data and Syahidah Ulhaq for some application programs enabling mapping literature, as well as Israa Natiq Jabar for supervising the result and applied some inputs in the section of research method.

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Foreign direct investment, domestic investment, and the role of institutions in Central, Eastern, and South-Eastern Europe

Bucevska,

Merdzan

2024

Ekon an

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The paper examines the relationship between foreign direct investment (FDI) and domestic investment in Central, Eastern, and South-Eastern European (CESEE) countries from 1995 to 2021. The primary hypothesis posits that FDI exerts a positive influence on domestic investment, with variations observed across diverse institutional contexts. The research utilises fixed effects and a one-step difference generalised method of moments (GMM) to determine whether FDI leads to an increase or decrease in domestic investment in CESEE countries. The findings indicate that FDI has a favourable and statistically significant influence on domestic investment. However, the coefficients for FDI are less than one, indicating that while FDI stimulates overall investment, it does not create a crowding-in effect where the rise in total investment surpasses the FDI inflows. When the data is split on the basis of institutional quality, it is evident that FDI continues to positively impact domestic investment in high and low-institutional- quality settings. The coefficients for FDI in both subgroups are less than one, implying that institutional quality does not substantially change the correlation between FDI and domestic investment. These results indicate the positive and significant impact of FDI on domestic investment, without crowding-in effects for the entire sample of CESEE economies and both subgroups that differ in institutional quality.

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Effect of Foreign Direct Investment on Economic Growth and Domestic Investment: Evidence from OECD Countries

Cited by 4 publications

References 58 publications

Exploring the optimal threshold of FDI inflows for carbon-neutral growth in Africa

Exploring the optimal threshold of FDI inflows for carbon-neutral growth in Africa

Linking regional investments and revenues at the provincial level to investment loan decisions by local government banks in Indonesia

Foreign direct investment, domestic investment, and the role of institutions in Central, Eastern, and South-Eastern Europe

Contact Info

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