FDI and economic growth nexus for the largest FDI recipients in Asian emerging economies: A panel co-integration analysis

Abstract

Foreign direct investment (FDI) inflows and outflows have substantial impact on the world economy, and are important for both developed and developing countries (e.g., Temiz & Gokmen, 2014). Foreign investments are generally assumed to have positive impacts on a country’s economy, and to be among the principal factors supporting accelerated economic growth (Okamoto & Sjoholm, 2005). In the literature, among the most-cited reasons for Asia’s strong economic growth in the recent era has been the inflow of FDI into the region. This inward FDI has also proven to be an effective means through which Asian countries are integrated with rest of the world (and vice-versa) (Vadlamannati, Tamazian, & Irala, 2009). Today, most countries are inclined to attract FDI, due to the expected favorable effects on income generation from capital inflows, advanced technology, management skills, and market know-how. In developing countries, such as China and India, the attraction of foreign capital is considered to be a necessary means for economic growth (Choong & Lam, 2010; Kurtishi-Kastrati, 2013). It is widely recognized that FDI provides economic benefits to recipient countries by providing capital, foreign exchange, and technology, and by increasing both competition and access to foreign markets (e.g., Romer, 1993; World Bank, 1999; Crespo & Fontoura, 2007).