The relationship between foreign direct investment, financial development and growth economic in Next-11 Countries: a PMG/ARDL estimation

Abstract

Summary This study investigates the relationship between FDI, economic growth and financial development in the Next 11 countries. An analysis of the results was performed accordingly on the panel data gathered from the Next 11 countries from 1985 to 2019— using the Pooled Mean Group (PMG) estimation method and the Autoregressive Distributed Lag model approach (ARDL). The results indicate an impact of both economic growth and financial development on the FDI flows to the study of countries during the period between 1985 and 2019 in the long run, while no such proof is affirmed in the short run. This study’s contribution provides a better understanding of the dynamic relationship between FDI, economic growth, and financial development by providing decision-makers to understand the nature of the dynamic association between the study variables. This study provides empirical evidence about the association between inflows of FDI, economic growth and financial development within the context of the Next-11 countries. The previous literature lacks empirical study on the relationship between variables of study for the Next-11 countries.

The effect of natural resources and foreign direct investment on economic growth

“…To summarise, the findings indicate that foreign direct investment and natural resource rents substantially and favorably impact gross domestic product (GDP) growth. This effect underscores the significance of implementing effective economic policies and strategies for managing resources to promote sustainable economic development; this is consistent with Shinwari et al (2023), Muhammad and Khan (2023), and Louail and Zouita (2021).…”

“…This result implies that previous fluctuations in foreign direct investment (FDI) hurt the current economic growth rate, particularly in the immediate term. This result suggests a potential correction mechanism or a reversal effect, as in a study by Louail and Zouita (2021). The lagged error correction term, ECTt-1, exhibits a remarkably significant coefficient of -1.17*** (p-value = 0.000).…”

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

“…This adverse effect increases without good institutional quality. Louail and Zouita (2021) 1985-2019, 11 developing countries PMG/Panel ARDL They conclude that there is a positive relationship between FDI, economic growth and financial development in the long run, while no such proof is found in the short run.…”