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Article
Publication date: 15 June 2021

Amna Zardoub

Globalization occupies a central research activity and remains an increasingly controversial phenomenon in economics. This phenomenon corresponds to a subject that can be…

Abstract

Purpose

Globalization occupies a central research activity and remains an increasingly controversial phenomenon in economics. This phenomenon corresponds to a subject that can be criticized through its impact on national economies. On the other hand, the world economy is evolving in a liberalized environment in which foreign direct investment plays a fundamental role in the economic development of each country. The advent of financial flows – foreign direct investment, remittances and official development assistance – can be a key factor in the development of the economy. The purpose of this study is to analyze the effect of financial flows on economic growth in developing countries. Empirically, different approaches have been used. As part of this study, an attempt was made to use a combined autoregressive distributed lag (ARDL) panel approach to study the short-term and long-run effects of financial flows on economic growth. The results indicate ambiguous effects. Economically, the effect of financial flows on economic growth depends on the investor’s expectations.

Design/methodology/approach

To study the short-run and long-run effects of financial flows on economic growth, this paper considers an empirical approach based on the panel ARDL. This model makes it possible to distinguish between the short-run effect and the long-run one. This type of model is based on three estimators, namely, mean group, pooled mean group (PMG) and dynamic fixed effect.

Findings

Results confirm the existence of a long-run relationship because the adjustment coefficient (error correction parameter) is negative and statistically significant. This paper finds that the PMG estimator is more consistent and more efficient. In the short-run, foreign direct investment do negatively affect economic growth, the effect is no significant in the long-run. On the other hand, the effect of remittances on economic growth is significant in the short-run. However, it is no significant in the long-run. Finally, the results suggest that the effect of official development assistance on economic growth is insignificant; both in the long-run and in the short-run.

Originality/value

To study the interaction between financial flows and economic growth, some empirical methodology are used such as the dynamic panel data and the autoregressive vector (VAR) model. In this study, we apply the panel ARDL model to analyze the short-run and the long-run effect for each financial flow on economic growth. The objective is to study the heterogeneity on dynamic adjustment in the short-term and long-term.

Details

PSU Research Review, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2399-1747

Keywords

Article
Publication date: 6 March 2017

Bishnu Kumar Adhikary

The purpose of this paper is to investigate the macroeconomic determinants of foreign direct investment (FDI) for the top five South Asian economies, namely, Bangladesh…

2307

Abstract

Purpose

The purpose of this paper is to investigate the macroeconomic determinants of foreign direct investment (FDI) for the top five South Asian economies, namely, Bangladesh, India, Pakistan, Sri Lanka, and Nepal, and to examine whether these factors are the same for each.

Design/methodology/approach

This study employs fully modified ordinary least squares and two-stage least squares estimation methods.

Findings

This study shows that South Asian economies have a number of FDI determinants in common. For example, market size and human capital are the two most common factors attracting FDI in each country (except for Nepal, which revealed a negative correlation between FDI and market size). Other factors, such as infrastructure, domestic investment, lending rates, exchange rates, inflation, financial stability/crisis, and stock turnover entered into regression with both positive and negative signs, thereby indicating that the underlying theories on FDI do not provide a clear prediction of the direction of the effect of a particular variable on FDI.

Research limitations/implications

This paper studied the effects of demand-side factors on FDI. A comparative study of the supply-side factors may add further knowledge.

Practical implications

This paper provides evidence to show that the determinants of FDI are indeed country-specific. Thus, to design a suitable FDI policy, it would not be wise to solely rely on other economies’ FDI experiences.

Originality/value

This paper provides updated evidence on factors that are essential to promoting or deterring FDI in South Asian economies.

Details

South Asian Journal of Business Studies, vol. 6 no. 1
Type: Research Article
ISSN: 2398-628X

Keywords

Article
Publication date: 20 September 2011

T. Bhavan, Changsheng Xu and Chunping Zhong

South Asia has been an important destination of foreign aid over the past decades. Since a large part of aid is disbursed for social and economic infrastructure…

1089

Abstract

Purpose

South Asia has been an important destination of foreign aid over the past decades. Since a large part of aid is disbursed for social and economic infrastructure development in South Asian countries, and the volume of aid has tremendously increased in recent years, the purpose of this study is to investigate how far various categories of foreign aid affects economic growth rate in these countries. In addition, as the trend of each category of aid transfer appears to have been volatile, this study also investigates whether the volatilities inhibit growth rate in these countries.

Design/methodology/approach

In this study, South Asia refers to India, Bangladesh, Pakistan and Sri Lanka. The Random effects approach is employed incorporating panel data for the period of 1995‐2008. The aggregate foreign aid is classified into various categories to have a comprehensive investigation.

Findings

Foreign aid positively associated with growth whereas the volatility of aid hurts it. Long‐impact aid promotes growth more than short‐impact aid does. The volatility of short‐impact aid hurts growth, whereas the volatility of long‐impact aid has no effect on it. Pure aid and its volatility have no effect on growth.

Originality/value

This study has identified the structure of foreign aid disbursed in these countries, and explored how far each category and respective volatility affects growth. These findings would be useful to the scholars and policy makers in the recipient countries as well as donors, to make foreign aid much more effective in future.

Details

International Journal of Development Issues, vol. 10 no. 3
Type: Research Article
ISSN: 1446-8956

Keywords

Article
Publication date: 23 August 2019

Justin Paul and Pravin Jadhav

Foreign direct investment (FDI) is a strategic decision for achieving competitive advantage by multinational enterprises. The purpose of this paper is to explore the role…

1172

Abstract

Purpose

Foreign direct investment (FDI) is a strategic decision for achieving competitive advantage by multinational enterprises. The purpose of this paper is to explore the role of institutional determinants of FDI using data from 24 emerging markets including China, India, Indonesia, Turkey, Thailand, Malaysia and Pakistan.

Design/methodology/approach

In order to identify factors that attract FDI in emerging markets, this study has used data from sources such as the World Bank, Index of Economic Freedom and UNCTAD.

Findings

The findings of this research indicate that infrastructure quality, trade cost measured by tariff and non-tariff barriers, institutional quality measured by effective rule of law, political stability, regulatory quality and control on corruption are significant determinants of FDI in emerging markets.

Originality/value

This is the first study to analyze the sectoral institutional determinants of Inward FDI in the important emerging economies, to the best of authors’ knowledge.

Details

International Journal of Emerging Markets, vol. 15 no. 2
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 27 May 2020

Nihar Ranjan Jena and Narayan Sethi

The purpose of this paper is to empirically examine the effectiveness of foreign aid in improving economic growth prospects in the South Asian region from 1996 to 2017.

Abstract

Purpose

The purpose of this paper is to empirically examine the effectiveness of foreign aid in improving economic growth prospects in the South Asian region from 1996 to 2017.

Design/methodology/approach

A sample of eight South Asian countries for the period 1996–2017 is being considered for this study. This study uses various econometrics tools such as Pedroni and Johansen–Fisher panel cointegration test, panel fully modified ordinary least square and panel dynamic ordinary least square (PDOLS) to ascertain the long-run and short-run dynamics among the variables under consideration.

Findings

The empirical results found that long-run, as well as the short-run relationship, exist among foreign aid, economic growth, investment, financial deepening, price stability and trade openness of the South Asian economies. The authors also found unidirectional causality running from foreign aid to economic growth. Both the long-run relationship as well as short-run causality between foreign aid and economic growth is unequivocally positive.

Originality/value

This study uses a dynamic macroeconomic modeling framework to assess the impact of aid flows on economic growth in South Asian economies. Taking into account the diversity of level of growth experienced by the eight countries in the Asian region, this study uses an appropriate regression technique, i.e. PDOLS whose results are robust. Therefore, the policymakers in these countries are well-advised to implement suitable policy measures to ensure optimum utilization of foreign capital resources garnered by way of receipt of foreign aid and build on for stronger future economic growth.

Details

South Asian Journal of Business Studies, vol. 10 no. 1
Type: Research Article
ISSN: 2398-628X

Keywords

Article
Publication date: 22 June 2021

Ahamed Lebbe Mohamed Aslam and Sabraz Nawaz Samsudeen

The objective of this study is to explore the dynamic inter-linkage between foreign aid and economic growth in Sri Lanka over the period of 1960–2018.

Abstract

Purpose

The objective of this study is to explore the dynamic inter-linkage between foreign aid and economic growth in Sri Lanka over the period of 1960–2018.

Design/methodology/approach

Both exploratory and inferential data analysis tools have been employed to examine the objective of this study. The exploratory data analysis covered the scatter plots, confidence ellipse with kernel fit. The inferential data analysis included the augmented Dickey–Fuller (ADF) and Phillips–Perron (PP) unit root tests, the autoregressive distributed lag (ARDL) Bounds co-integration technique and the Granger causality test.

Findings

The test result of exploratory data analysis indicates that there is a positive relationship between foreign aid and economic growth. The ADF and PP unit root tests results indicate that the variables used in this study are stationary at their 1st difference. The co-integration test result confirms the presence of long-run relationship between foreign aid and economic growth in Sri Lanka. The estimated coefficient of foreign aid in the long-run and the short-run shows that foreign aid has a positive relationship with economic growth in Sri Lanka. The estimated coefficient of error correction term indicates that approximately 26.6% of errors are adjusted each year and further shows that the response variable of economic growth moves towards the long-run equilibrium path. The Granger causality test result shows that foreign aid in short-run Granger causes economic growth in Sri Lanka which means that one-way causality from foreign aid to economic growth is confirmed. Further, the estimated coefficient of error correction term confirms that there is the long-run Granger causal relationship between foreign aid and economic growth in Sri Lanka.

Practical implications

The findings of this study have some important policy implications for the design of efficient policy related to foreign aid and economic growth, the knowledge of which will help follow sustainable foreign aid and growth nexus.

Originality/value

This study contributes to the existing literature by using the newly introduced ARDL Bounds cointegration technique to investigate the dynamic inter-linkage between foreign aid and economic growth in Sri Lanka.

Details

Journal of Economic and Administrative Sciences, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1026-4116

Keywords

Article
Publication date: 17 May 2021

Stanley Emife Nwani

The purpose of this study is to examine the interactive role of human capital development (HCD) in foreign aid-growth relations in South Asia and sub-Saharan Africa…

Abstract

Purpose

The purpose of this study is to examine the interactive role of human capital development (HCD) in foreign aid-growth relations in South Asia and sub-Saharan Africa countries from 1985–2019.

Design/methodology/approach

The study used panel data that cut across all countries in South Asia and sub-Saharan Africa collected from The World Bank’s Development Indicators. The data were analysed using Bai and Ng panel unit root idiosyncratic cross-sectional tests and the system generalised method of moments (SGMM).

Findings

The study found that foreign aid and HCD have negative impacts on economic growth. Fortunately, the interaction of human capital with foreign aid reduces the extent to which foreign aid impedes economic growth. The presumption is that South Asia and sub-Saharan Africa economies had not reaped the potential growth effect of foreign aid inflows due to high illiteracy rates and weak social capacities. The peculiarity of these regions hinders the absorptive capacity to transform positive externality associated with foreign aid into sizeable economic prosperity.

Practical implications

It is imperative for South Asia and sub-Saharan Africa countries to not depend on foreign aid; instead, the strategic action by policymakers should be to developing sustainable social capacities with HCD as the centre-piece.

Originality/value

The highpoint of this study is its inter-regional approach and the interplay between human capital and foreign aid using the second generation panel unit root estimator and the SGMM approaches.

Details

International Journal of Development Issues, vol. 20 no. 2
Type: Research Article
ISSN: 1446-8956

Keywords

Article
Publication date: 1 October 2018

Vincent Konadu Tawiah, Evans John Barnes, Prince Acheampong and Ofori Yaw

This paper has examined the effectiveness of foreign aid on Ghanaian economy under different political regimes.

Abstract

Purpose

This paper has examined the effectiveness of foreign aid on Ghanaian economy under different political regimes.

Design/methodology/approach

Using vector error correction and co-integration models on the annual data set over a period of 35 years, the authors demonstrate that foreign aid has had varied impacts on economic growth depending on the political ideology of the government in power.

Findings

With capitalist political philosophy, foreign aid improves private sector growth through infrastructural development. On the other hand, a government with socialist philosophy applies most of its foreign aid in direct social interventions with the view of improving human capital. Thus, each political party is likely to seek foreign aid/grant that will support its political agenda. Overall, the results show that foreign aid has a positive impact on the growth of the Ghanaian economy when there is good macroeconomic environment.

Practical implications

This implies that the country experiences economic growth when there are sound economic policies to apply foreign aid.

Originality/value

The practical implication of the findings of this paper is that donor countries and agencies should consider the philosophy of the government in power while granting aid to recipient countries, especially in Africa. The results are robust to different proxies and models.

Details

International Journal of Development Issues, vol. 18 no. 1
Type: Research Article
ISSN: 1446-8956

Keywords

Article
Publication date: 9 December 2020

Sena Kimm Gnangnon

This paper aims to examine the effect of development aid volatility on foreign direct investment (FDI) volatility in aid recipient countries.

Abstract

Purpose

This paper aims to examine the effect of development aid volatility on foreign direct investment (FDI) volatility in aid recipient countries.

Design/methodology/approach

The empirical analysis has relied on a sample of 117 countries over the period 1981–2016 and used the two-step system generalized methods of moments (GMM) approach.

Findings

The findings indicate that development aid volatility exerts a positive and significant effect on FDI volatility, with the magnitude of this positive effect rising as countries’ real per capita income increases. Furthermore, development aid volatility is non-linearly related to FDI volatility, as additional rises in the degree of development aid volatility further amplify FDI volatility.

Research limitations/implications

These outcomes highlight that volatility of development aid inflows enhances the volatility of FDI inflows. Thus, the enhancement of the aid coordination system between donor-countries and recipient-countries would not only help mitigate the volatility of aid – which reduces the macroeconomic effectiveness of aid – but also stabilizes FDI inflows to developing countries.

Practical implications

A limitation of the present paper is its reliance on aggregate FDI inflows to perform the analysis. Availability of data on greenfield FDI inflows and cross-border mergers and acquisitions FDI inflows over a long-time-period would provide an opportunity to conduct an in-depth analysis of the volatility of development aid on FDI inflows volatility. Furthermore, it could be interesting to investigate in the future (if data is available) the extent to which aid coordination systems between donor-countries and recipient-countries versus recipient-countries’ domestic factors contribute to explaining the dynamics of FDI inflows volatility in recipient-countries of these two types of capital flows.

Originality/value

To the best of the authors’ knowledge, this topic has not been addressed in the literature.

Details

Review of International Business and Strategy, vol. 31 no. 2
Type: Research Article
ISSN: 2059-6014

Keywords

Article
Publication date: 6 July 2015

Jigme Nidup

The purpose of this paper is to investigate the impact of Non-Indian foreign aid on economic growth. In addition, this paper also investigates the importance of…

Abstract

Purpose

The purpose of this paper is to investigate the impact of Non-Indian foreign aid on economic growth. In addition, this paper also investigates the importance of governance, policy and democratic institution in fostering economic growth. Planned development activities in Bhutan are mostly funded through external assistance, particularly from India. Bhutan also receives assistance from other bilateral and multilateral countries besides India.

Design/methodology/approach

This study adopts the autoregressive distributed lag approach to cointegration using time-series data from 1982 to 2012. To ensure stationarity of data, the unit root test is conducted. Necessary diagnostic tests are also performed to confirm that the model does not violate regression assumptions.

Findings

Findings indicate that Non-Indian foreign aid, governance and democracy are detrimental to economic growth. Policy and investment is found insignificant determinant. However, labour force and technology are found fostering economic growth.

Research limitations/implications

Less number of observations restrained detailed analysis like the use of interactive terms between aid and governance, aid and policy to see its actual impact. Data on Indian aid could not be sourced from any documents. Those available were found only for few years restricting time series analysis.

Originality/value

This study explored the impact of various determinants on economic growth in Bhutan. These findings provide useful insights for policymakers in Bhutan to make necessary decisions. The analysis also suggests future ground for research to those scholars and researchers.

Details

International Journal of Development Issues, vol. 14 no. 2
Type: Research Article
ISSN: 1446-8956

Keywords

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