Work detail

Foreign Direct Investment and Economic Growth

Author: Arshad Hayat (17.6.2020)
Year: 2020 - summer
Leaders: doc. Ing. Tomáš Cahlík CSc.
Consultants:
Work type: Dissertations
Language: English
Pages: 162
Awards and prizes:
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Abstract: This dissertation consists of three empirical research papers on FDI inflow and economic growth and the role the host country natural resources abundance and institutional quality play in altering the FDI-growth relationship.
The first paper (chapter 2) investigates the FDI-growth relationship and the impact of the host country’s natural resource abundance on the FDI-growth relationship. The paper uses a dataset of 117 countries over the period 1991-2016 and use system GMM estimation method and found a positive and significant impact of FDI inflows on the economic growth of the host country. However, FDI-induced growth was found to be more pronounced in the low-and middle-income countries compared to high-income countries. Further, FDI-induced economic growth is slowed down by the increase in the size of the natural resource sector both in the low-and middle-income as well as high-income countries. The direct negative impact of natural resources on growth was found to be stronger in the low-and middle-income countries compared to the high-income countries.
Building on the results of the first paper (chapter 3), the second paper estimated a fixed effect threshold for the level of natural resources and found that FDI inflow has a stronger positive impact on the economic growth of the host country if the host country’s natural resource export is below the statistically significant estimated threshold compared to countries with natural resources export larger than the estimated threshold. The results are consistent with alternative natural resources indicators, i.e., natural resource rents (as a percent of GDP).
The third paper (chapter 4) uses IRCG institutional quality indicators and a dataset of 117 countries over the period 1991-2016 and applies the system GMM estimation method to a dynamic panel data to evaluate the direct impact of institutional quality on economic growth and the indirect impact of institutional quality on economic growth through enhancing the FDI-induced economic growth. This paper provides evidence that both institutional quality indicators like bureaucracy, corruption, law & order, and investor profile have a consistent and significant direct impact on economic growth as well as an indirect effect by enhancing the FDI-induced economic growth. The indicators of government stability and democratic accountability were found to have an insignificant impact on the FDI-growth relationship. These results are consistent for countries of different income levels.

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