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Causal Nexus between Economic Complexity and FDI: Empirical Evidence from Time Series Analysis

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  • Hameed Khan
  • Umair Khan
  • Muhammad Asif Khan

Abstract

The rapid economic emergence of China is credited to be its products and economic complexity. Foreign direct investment, with its better-embedded knowhow and technology, is one of the main drivers for the higher economic complexity of China. By applying the ARDL and VECM approaches; this study confirms the long-run bidirectional and short-run unidirectional causal relationship between economic complexity and foreign direct investment. Besides, we include additional control variables such as institutional quality, information & communication technology, trade openness, per capita GDP, domestic investment, and human capital, which are found robust in our analysis.

Suggested Citation

  • Hameed Khan & Umair Khan & Muhammad Asif Khan, 2020. "Causal Nexus between Economic Complexity and FDI: Empirical Evidence from Time Series Analysis," Chinese Economy, Taylor & Francis Journals, vol. 53(5), pages 374-394, September.
    • Handle: RePEc:mes:chinec:v:53:y:2020:i:5:p:374-394
    DOI: 10.1080/10971475.2020.1730554
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    1. Avom, Désiré & Keneck-Massil, Joseph & Njangang, Henri & Nvuh-Njoya, Youssouf, 2022. "Why are some resource-rich countries more sophisticated than others? The role of the regime type and political ideology," Resources Policy, Elsevier, vol. 79(C).
    2. Balland, Pierre-Alexandre & Broekel, Tom & Diodato, Dario & Giuliani, Elisa & Hausmann, Ricardo & O'Clery, Neave & Rigby, David, 2022. "The new paradigm of economic complexity," Research Policy, Elsevier, vol. 51(3).
    3. Yeung, Hak & Huber, Jürgen, 2024. "Has China's belt and road initiative positively impacted the economic complexity of host countries? Empirical evidence," Structural Change and Economic Dynamics, Elsevier, vol. 69(C), pages 246-258.
    4. Nguyen, Canh Phuc & Su, Thanh Dinh, 2021. "Economic integration and economic complexity: The role of basic resources in absorptive capability in 40 selected developing countries," Economic Analysis and Policy, Elsevier, vol. 71(C), pages 609-625.
    5. Brice Kamguia & Sosson Tadadjeu & Clovis Miamo & Henri Njangang, 2022. "Does foreign aid impede economic complexity in developing countries?," International Economics, CEPII research center, issue 169, pages 71-88.
    6. Balland, Pierre-Alexandre & Broekel, Tom & Diodato, Dario & Giuliani, Elisa & Hausmann, Ricardo & O'Clery, Neave & Rigby, David, 2022. "Reprint of The new paradigm of economic complexity," Research Policy, Elsevier, vol. 51(8).
    7. Ibolya Török & József Benedek & Manuel Gómez-Zaldívar, 2022. "Quantifying Subnational Economic Complexity: Evidence from Romania," Sustainability, MDPI, vol. 14(17), pages 1-22, August.
    8. Antonietti, Roberto & Franco, Chiara, 2021. "From FDI to economic complexity: a panel Granger causality analysis," Structural Change and Economic Dynamics, Elsevier, vol. 56(C), pages 225-239.
    9. Jasnine Mogem Kouam & Luc Nembot Ndeffo & Mathurin Aimé Mekam Pouatcha, 2023. "The long and short run effects of foreign direct investment on economic complexity in Sub-Saharan African countries," Economics Bulletin, AccessEcon, vol. 43(3), pages 1421-1433.
    10. Mollah Aminul Islam & Muhammad Asif Khan & József Popp & Wlodzimierz Sroka & Judit Oláh, 2020. "Financial Development and Foreign Direct Investment—The Moderating Role of Quality Institutions," Sustainability, MDPI, vol. 12(9), pages 1-22, April.
    11. Brice Kamguia & Manuella Ndjakwa & Sosson Tadadjeu, 2023. "Does infrastructural development foster export upgrading in Africa?," African Development Review, African Development Bank, vol. 35(1), pages 79-94, March.
    12. Canh Phuc Nguyen & Thanh Dinh Su, 2021. "Financing the economy: The multidimensional influences of financial development on economic complexity," Journal of International Development, John Wiley & Sons, Ltd., vol. 33(4), pages 644-684, May.
    13. Ben Saad, Myriam & Brahim, Mariem & Schaffar, Alexandra & Guesmi, Khaled & Ben Saad, Rym, 2023. "Economic complexity, diversification and economic development: The strategic factors," Research in International Business and Finance, Elsevier, vol. 64(C).
    14. Nathapornpan Uttama & Popkarn Arwatchanakarn, 2023. "How do economic complexity and productive capacities foster foreign direct investment flows? Evidence from the Asian economies," Economics Bulletin, AccessEcon, vol. 43(1), pages 629-643.
    15. Nguyen, Canh Phuc, 2021. "Gender equality and economic complexity," Economic Systems, Elsevier, vol. 45(4).
    16. Ajide, Kazeem Bello, 2022. "Is natural resource curse thesis an empirical regularity for economic complexity in Africa?," Resources Policy, Elsevier, vol. 76(C).
    17. Nguyen Phuc Canh & Su Dinh Thanh, 2022. "The Dynamics of Export Diversification, Economic Complexity and Economic Growth Cycles: Global Evidence," Foreign Trade Review, , vol. 57(3), pages 234-260, August.
    18. Shahzad, Umer & Madaleno, Mara & Dagar, Vishal & Ghosh, Sudeshna & Doğan, Buhari, 2022. "Exploring the role of export product quality and economic complexity for economic progress of developed economies: Does institutional quality matter?," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 40-51.
    19. Li, Zhiyuan & Doğan, Buhari & Ghosh, Sudeshna & Chen, Wei-Ming & Lorente, Daniel Balsalobre, 2024. "Economic complexity, natural resources and economic progress in the era of sustainable development: Findings in the context of resource deployment challenges," Resources Policy, Elsevier, vol. 88(C).
    20. Stéphane Mbiankeu Nguea & Hervé Kaffo Fotio & Louise Angèle Baida, 2022. "Investigating the effects of globalization on economic sophistication in selected African countries," African Development Review, African Development Bank, vol. 34(3), pages 324-338, September.

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