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Economic Growth in Middle-Income Countries: The Role of Political Stability and Foreign Direct Investment

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  • Mongi Chebli

    (University of Tunis El Manar)

  • Kais Saidi

    (University of Sfax)

Abstract

In this article, we investigate the interrelationships between political stability, corruption, and public governance, in association with foreign direct investment (FDI) and Gross Fixed Capital formation (GFCF), and economic growth (GDP) for a global panel of 46 middle-income countries over the period 1996–2016. A multivariate panel model was employed to evaluate the long-run relationship and the panel Granger causality tests was used to judge the causality direction among different variables. The obtained results reveal that political instability in these countries affect clearly the positive relationship between FDI, GFCF and economic growth. The empirical results from the Granger causality test reveal a bidirectional causality relationship between the FDI, GFCF and GDP in presence of political factors and corruption. Moreover, our empirical findings confirm the existence of unidirectional causality running from GDP, FDI and GFC to corruption, from Government Effectiveness to FDI and GFCF. The policy implications of these results are also proposed and discussed.

Suggested Citation

  • Mongi Chebli & Kais Saidi, 2024. "Economic Growth in Middle-Income Countries: The Role of Political Stability and Foreign Direct Investment," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 22(3), pages 641-665, September.
    • Handle: RePEc:spr:jqecon:v:22:y:2024:i:3:d:10.1007_s40953-024-00394-x
    DOI: 10.1007/s40953-024-00394-x
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    More about this item

    Keywords

    Political stability; FDI; GFC; Economic growth;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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