Foreign direct investment and economic complexity in emerging economies

Abstract

Purpose ― In this study, we investigate the impact of foreign direct investment (FDI) on economic complexity in MINT and BRICS countries. Methodology ― Data on economic complexity from MIT’s Observatory of Economic Complexity and data on FDI and other determinants of economic complexity are sourced from World Development indicators which spanned between 1991 and 2020. The countries are divided into three categories: All countries pooled together, MINT and BRICS countries. We employ panel co-integrating regression. Findings ― Findings based on panel co-integration regression show that foreign direct investment positively impacts economic complexity in all the countries and MINT countries, while its impact is negative in BRICS countries. Originality ― This study adds value to the literature by scrutinizing the nexus between FDI and economic complexity in the context of emerging economies and employs the panel co-integration technique for robust analysis. The study's findings shed light on the need for governments in developing countries to implement appropriate policies encouraging FDI inflows into their respective countries. Contributing to the host country's economic complexity, FDI inflows should be focused on highly technical investment and, most importantly, should be selective to enhance the development of priority sectors. An investment promotion policy may be required to encourage foreign investment in the host country.

Does Insurance Sector Matter for Economic Complexity?

“…Furthermore, the results reveal that income per capita contributes to the improvement of national economic complexity. Income growth leads to economic sophistication, as seen in Hartmann et al ( 2017), and further supports the submission of Gala et al ( 2018) and Nguyen et al (2020), but contradicts the results of Osinubi and Ajide (2022) and Njangang et al (2021). The results also suggest that internet penetration reduces economic complexity for the case of total insurance and non-life insurance while it improves life insurance in the OECD economies.…”

“…Furthermore, this study adds institutional variables proxied by economic freedom (Econfre), foreign direct investment (FDI) to measure the presence of multinational firms in the economy, government expenditure (Govt), remittances (Rem), and population growth (Pop). The relationship between these control variables and economic complexity has been well informed by the previous studies (see Osinubi & Ajide, 2022;Nguyen & Su, 2021;Nguyen et al, 2020). Ajide and Osinubi (2023) show that remittances provide funds to finance economic activities and enhance structural transformation.…”

“…The presence of multinational firms encourages innovation and technological transformation in the economy (Nguyen & Su, 2021;Ajide, 2022). GDP per capita is said to influence economic complexity due to its ability to affect the quality of a product (Saad, 2020;Osinubi & Ajide, 2022). Internet usage enhances knowledge and skills required to expand economic complexity (Nguyen et al, 2020;Dada et al, 2023).…”

“…With the exception of Australia, all OECD countries display positive ECI. This encouraging Econcomp indicates that nations are turning more and more toward advanced knowledge-based economies and away from agriculture and production that produces a lot of pollution (Osinubi & Ajide, 2022). Contrarily, it is clear that Australia exports agricultural and pollution-heavy goods rather than technologically advanced goods.…”

Financial development and economic complexity: The role of country stability

“…Additionally, he suggests that lower‐income countries will benefit more from exporting to sophisticated economies. Osinubi and Ajide (2022) further argue of the importance of foreign direct investments for the complexity of emerging economies.…”