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Do channels of financial integration matter for FDI’s impact on growth? Empirical evidence using a panel

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  • Ahmed M. Khalid
  • Antonio Marasco

Abstract

This paper adds to the debate on the relationship between foreign direct investment (FDI) and economic growth which suggest that the link between FDI and economic growth is rather the consequence of both FDI and growth responding endogenously to economic integration. We investigate if the impact of FDI on growth is dependent on the channel of integration used to attract FDI. We use four different indexes of economic integration including Trade Openness, Chinn-Ito, and KOF and our newly constructed index of financial integration. We employ these four indexes to investigate the role played by economic integration in linking FDI and growth. We use a panel consisting of 134 developing countries and data spanning the period 1989-2017 estimated using the generalized method of moments (GMM) technique. The results show that FDI is an important determinant of growth. The results also suggest that at least some of the integration variables do matter and work as channels to attract FDI leading to growth. However, after stratifying countries by income level, we also find that integration matters mainly for high income countries. Integration variables for other income groups do not show much significance. These are interesting results and may have important policy implications.

Suggested Citation

  • Ahmed M. Khalid & Antonio Marasco, 2019. "Do channels of financial integration matter for FDI’s impact on growth? Empirical evidence using a panel," Applied Economics, Taylor & Francis Journals, vol. 51(37), pages 4025-4045, August.
    • Handle: RePEc:taf:applec:v:51:y:2019:i:37:p:4025-4045
    DOI: 10.1080/00036846.2019.1588945
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    Cited by:

    1. Xiaojie Wang & Rongqing Han & Minghua Zhao, 2023. "Evaluation and Impact Mechanism of High-Quality Development in China’s Coastal Provinces," IJERPH, MDPI, vol. 20(2), pages 1-24, January.
    2. Mohammad Razib Hossain, 2021. "Inward foreign direct investment in Bangladesh: Do we need to rethink about some of the macro-level quantitative determinants?," SN Business & Economics, Springer, vol. 1(3), pages 1-23, March.
    3. Yafei Wang & Li Xie & Yi Zhang & Chunyun Wang & Ke Yu, 2019. "Does FDI Promote or Inhibit the High-Quality Development of Agriculture in China? An Agricultural GTFP Perspective," Sustainability, MDPI, vol. 11(17), pages 1-19, August.
    4. Ichiro Iwasaki & Shigeki Ono, 2024. "Economic development and the finance–growth nexus: a meta-analytic approach," Applied Economics, Taylor & Francis Journals, vol. 56(57), pages 8021-8038, December.
    5. Nguyen, Trang Thi Thuy & Pham, Binh Thai & Sala, Hector, 2022. "Being an emerging economy: To what extent do geopolitical risks hamper technology and FDI inflows?," Economic Analysis and Policy, Elsevier, vol. 74(C), pages 728-746.
    6. Natalia I. Doré & Aurora A. C. Teixeira, 2023. "Empirical Literature on Economic Growth, 1991–2020: Uncovering Extant Gaps and Avenues for Future Research," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 15(1), pages 7-37, January.

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