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Foreign Direct Investment, Sovereign Debt and Growth: Evidence for the Euro Area

Author

Listed:
  • Tan, Ai-Lian

    (Lecturer, Department of Economics, Faculty of Business and Finance, Universiti Tunku Abdul Rahman, Perak, MALAYSIA)

  • Ismail, Normaz Wana

    (Associate Professor, Department of Economics, Marketing and Trade Laboratory, Faculty of Economics & Management, Universiti Putra Malaysia; Serdang, MALAYSIA & Deputy Director, Agricultural Production, Institute of Agricultural and Food Policy Studies; Universiti Putra Malaysia, Serdang, MALAYSIA)

Abstract

In light of the global financial crisis, extensive implementation of fiscal stimulus packages has triggered an enormous soar in European public debt. While grappling with this albatross, the high debt level has aroused the paramount interest of this study and casts doubt on the role of sovereign debt in the linkage between FDI and economic growth. To this end, this study aims to assess the effects of debt on growth through the channel of FDI in European countries by applying Pooled Mean Group (PMG) estimation. The empirical findings, by and large, suggest that a lower growth performance is evident with the association of high government debt with foreign investment. In a nutshell, over-borrowing from public finance would crowd out private investment and hence stifle economic growth.

Suggested Citation

  • Tan, Ai-Lian & Ismail, Normaz Wana, 2015. "Foreign Direct Investment, Sovereign Debt and Growth: Evidence for the Euro Area," American Journal of Trade and Policy, Asian Business Consortium, vol. 2(2), pages 51-58.
    • Handle: RePEc:ris:ajotap:0108
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    Citations

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    Cited by:

    1. Kunofiwa Tsaurai & Daniel Makina, 2018. "The Impact of Financial Sector Development on Foreign Direct Investment: An Empirical Study on Minimum Threshold Levels," Journal of Economics and Behavioral Studies, AMH International, vol. 10(5), pages 244-254.

    More about this item

    Keywords

    FDI; global financial crisis; sovereign debt; economic growth;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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