Foreign direct investment, economic growth, and volatility: a useful model for policymakers

Edwards, Jack R.; Romero, Alfredo A.; Madjd‐Sadjadi, Zagros

doi:10.1007/s00181-015-1022-z

Cited by 8 publications

(5 citation statements)

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“…An ARCH effect was found in the growth rates of the chosen financial indicators, and the presence of volatility was found in the return rate of real GDP, which was also found in various studies previously conducted in Japan, USA and UK (Burren & Neusser, 2010;Hamori, 2000;Ho & Tsui, 2003;Koulakiotis, Lyroudi, & Papasyriopoulos, 2011). A study by Edwards et al (2016), which examined the relationship between foreign direct investment in 180 countries worldwide using the World Development Indicators dataset, also discovered a volatility effect. Also, another volatility analysis was carried out in 40 Sub-Saharan countries to explore the association between FDI and macroeconomic volatility (Asamoah et al, 2016) where volatility in FDI existed.…”

Section: Resultssupporting

confidence: 73%

“…No significant contemporaneous relationship was found between them in the low volatile regime but a significant positive relation was found in the high volatile regime (Rashid & Kocaaslan, 2013). Another volatility analysis was conducted to investigate the relationship between FDI and economic growth in 180 countries with data from the World Bank indicators using the ARCH two-step dynamic panel system generalized method of moments estimation approach (Edwards, Romero, & Madjd-Sadjadi, 2016). Again, the extended volatility analysis procedure called the GARCH model was used to find the volatility of macroeconomic uncertainty, and the relationship between macroeconomic volatility and FDI was explored by employing the panel model estimation technique (Asamoah, Adjasi, & Alhassan, 2016).…”

Section: Introductionmentioning

confidence: 99%

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An ARCH volatility analysis of real GDP, real gross capital formation, and foreign direct investment in Bangladesh

Gupta

Rahman

Sultana

et al. 2023

5002

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This paper aims to investigate the volatility of the growth rates of Bangladesh's real GDP, real gross capital formation, and net inflows of foreign direct investment. The study used data on these indicators from the World Bank for the period between 1972 and 2020. Autoregressive integrated moving average (ARIMA) and the autoregressive conditional heteroscedastic (ARCH) methods were applied to model the conditional mean and conditional variance components for each growth rate. The validity of the selected volatility models was evaluated using a variety of diagnostic techniques, such as the time series graph of estimated residuals, cumulative periodogram, and the portmanteau test for white noise. The overall performance of the selected models is evaluated using the mean squared error (MSE) and the root mean squared error (RMSE). For all three indicators, the conditional means depend on the growth rates of the previous year or two years, whereas conditional variances depend on the previous year’s rates. The outcomes of the study also indicate the existence of time-varying volatility in Bangladesh's economy. This study may be helpful in understanding the potential risks related to the volatile nature of macroeconomic growth rates.

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Section: Resultssupporting

confidence: 73%

Section: Introductionmentioning

confidence: 99%

An ARCH volatility analysis of real GDP, real gross capital formation, and foreign direct investment in Bangladesh

Gupta

Rahman

Sultana

et al. 2023

5002

View full text Add to dashboard Cite

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“…However, they do not differentiate explicitly among country income groups. Edwards at al. (2016) finds tentative evidence of differential effects of FDI on economic growth among income groups, mainly employing pooled regressions methods.…”

Section: Fdi and Growth: A Short Overviewmentioning

confidence: 99%

Do income levels and institutional quality mediate the impact of foreign direct investment on growth?

Gattini

Baiashvili²

2023

Preprint

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We investigate the role played by country income levels and the quality of the institutional environment in mediating the impact of FDI on growth in 111 countries, stretching from developing and emerging market to advanced economies. We find that FDI benefits do not accrue evenly across country income groups. The effect is larger for middle-income countries while we detect mixed evidence for high- and low- income countries. We make use of this first association to characterise the impact of FDI mediated by the institutional quality of countries. We uncover that institutional factors have a mediating positive effect on FDI within country income groups, whereby countries with better-developed institutions relative to their income group peers benefit more from a positive impact of FDI on growth. From a policy perspective, FDI appears a useful tool to support growth even more so when combined with a genuine reform agenda. JEL classification: C33, F21, E02, O43, O47

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“…The literature on the effect of FDI on growth is vast (see Edwards et al, 2016), and although we will make our survey highly selective, we will tie together the relevant literature on economic growth, its relationship with cultural make-up and the interaction between FDI and culture. Our intent is simply to conduct a succinct review of the literature specifically aimed at the importance of culture in the absorption of FDI inflows.…”

Section: Literature Reviewmentioning

confidence: 99%

“…The table in Appendix lists the countries in their respective values' categories, and also has a qualifier next to each country that defines their income level. It has been argued by those analyzing the WVS data that differences in development can affect a country's values system, and it has been shown that the effect FDI has on growth, especially when interacted with other variables, will also vary with developmental level (Edwards et al, 2016). Therefore, delineating countries in this manner should control for mean heterogeneity in both of these areas.…”

Section: Modelmentioning

confidence: 99%

Growth and foreign direct investment absorption across cultural dimensions

Romero

Edwards

2020

IJSE

Self Cite

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PurposeInjections of foreign direct investment (FDI) are often followed by injections of foreign culture which may not be well received among the local population. If this is the case, culture may impede any positive externalities from FDI. On the other hand, if the people of the host country embrace injections of FDI, this may lead to boosts in not only short-run factors of production but also longer-term technological spillovers. We measure what role cultural make-up of a country plays on the effect of FDI on growth in GDP.Design/methodology/approachUsing values system data from the World Values Survey (WVS), and socioeconomic data from the World Bank, we estimate and plot the marginal effect of FDI on growth as a function of a country's values system for a panel of 73 countries over a span of three decades.FindingsWe find that the marginal effect of FDI on growth in GDP differs across varying degrees of cultural values, even after adjusting for level of development. In other words, our analysis indicates that a country's cultural norms do indeed affect foreign investment's impact on economic growth.Originality/valueTo date there is no research that systematically assesses the effect that cultural make-up has on the marginal effect of FDI on growth. We go beyond the use of isolated cultural variables by using data on cultural dimensions that account for most of the observed cultural differences between countries. We believe our findings will work as a launchpad for more novel ways to capture country heterogeneity in growth research.Peer reviewThe peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-09-2019-0549.

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Foreign direct investment, economic growth, and volatility: a useful model for policymakers

Cited by 8 publications

References 50 publications

An ARCH volatility analysis of real GDP, real gross capital formation, and foreign direct investment in Bangladesh

An ARCH volatility analysis of real GDP, real gross capital formation, and foreign direct investment in Bangladesh

Do income levels and institutional quality mediate the impact of foreign direct investment on growth?

Growth and foreign direct investment absorption across cultural dimensions

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