Foreign direct investment quality and its interaction effects on economic growth in emerging economies: A dynamic panel model

Abstract

In many developing countries, Foreign Direct Investment (FDI) was and remain an important driver for economic growth. However, the contribution of FDI to the country’s economic growth is still inconclusive. Economist argued that the impact of FDI on growth is depend on the type of FDI inflowed to the economy. Another reason for the mixture result could be the different condition of the host country which are the human capital stock, financial openness and trade openness. Hence, the interaction effect of these three conditions with FDI quality have also examined. Therefore, this study intends to examine the impact of the different type of FDI inflowed on the economic growth. This is a cross-country study using annual panel data from 55 emerging economies. The data have been anaysed using dynamic panel model. The estimation results found that the model did not show encouraging result, the insignificant and / or negative results may due to the unavailability of the data from few important emerging economies especially China as this is the largest emerging economy in terms of the GDP. The results might be better if other variables were used as the dependent variable.