IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/112549.html
   My bibliography  Save this paper

Is the relationship between FDI and inflation nonlinear and asymmetric? new evidence from NARDL approach

Author

Listed:
  • Hossain, Saddam
  • Masih, Mansur

Abstract

The relationship between an FDI and inflation has been addressed in the literature. But they were based on linear and symmetric assumptions and the results are conflicting. We apply both ARDL and nonlinear ARDL which can test nonlinearity and asymmetric relationship between them. We use Bangladesh as a case study. The findings tend to indicate that there is a nonlinear cointegration between the FDI and inflation and that the relationship is symmetric in the short run but asymmetric in the long run. This is a very important finding for policy purposes. Moreover, the causality analysis tends to indicate that the FDI is the most exogenous (independent) variable and inflation is the most endogenous (dependent) variable. That implies that the FDI is determined externally and then it drives other variables such as, the trade openness, GDP, exchange rate and finally inflation. Hence the Government can use this Granger-causal chain to affect inflation through the monetary, fiscal and exchange rate policies.

Suggested Citation

  • Hossain, Saddam & Masih, Mansur, 2018. "Is the relationship between FDI and inflation nonlinear and asymmetric? new evidence from NARDL approach," MPRA Paper 112549, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:112549
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/112549/1/MPRA_paper_112549.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Moosa, Imad A. & Cardak, Buly A., 2006. "The determinants of foreign direct investment: An extreme bounds analysis," Journal of Multinational Financial Management, Elsevier, vol. 16(2), pages 199-211, April.
    2. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    3. Abdur Chowdhury & George Mavrotas, 2006. "FDI and Growth: What Causes What?," The World Economy, Wiley Blackwell, vol. 29(1), pages 9-19, January.
    4. Mahmood, Haider, 2018. "An Investigation of Macroeconomic Determinants of FDI Inflows in Bangladesh," MPRA Paper 109448, University Library of Munich, Germany.
    5. Trevino, Len J. & Daniels, John D., 1995. "FDI theory and foreign direct investment in the United States: a comparison of investors and non-investors," International Business Review, Elsevier, vol. 4(2), pages 177-194, June.
    6. Fedderke, J.W. & Romm, A.T., 2006. "Growth impact and determinants of foreign direct investment into South Africa, 1956-2003," Economic Modelling, Elsevier, vol. 23(5), pages 738-760, September.
    7. Mahmood, Haider, 2016. "Determinants of Bilateral FDI Inflows in Pakistan from Major Investing Countries: A Dynamic Panel Approach," MPRA Paper 109456, University Library of Munich, Germany.
    8. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    9. Camara Kwasi Obeng, 2018. "Is the effect of exchange rate volatility on export diversification symmetric or asymmetric? Evidence from Ghana," Cogent Economics & Finance, Taylor & Francis Journals, vol. 6(1), pages 1460027-146, January.
    10. Robin C. Sickles & William C. Horrace (ed.), 2014. "Festschrift in Honor of Peter Schmidt," Springer Books, Springer, edition 127, number 978-1-4899-8008-3, December.
    11. Hian Teck HOON & Frank S T Hsiao & Mei-Chu Wang Hsiao, 2020. "FDI, Exports, and GDP in East and Southeast Asia — Panel Data versus Time-Series Causality Analyses," World Scientific Book Chapters, in: Development Strategies of Open Economies Cases from Emerging East and Southeast Asia, chapter 4, pages 81-129, World Scientific Publishing Co. Pte. Ltd..
    12. Luiz R. de Mello Jr., 1997. "Foreign Direct Investment in Developing Countries: A Selective Survey," Studies in Economics 9701, School of Economics, University of Kent.
    13. Peter J. Buckley & Mark Casson, 1991. "The Future of the Multinational Enterprise," Palgrave Macmillan Books, Palgrave Macmillan, edition 0, number 978-1-349-21204-0, October.
    14. Agiomirgianakis, G. M. & Asteriou, D. & Papathoma, K., 2003. "The determinants of foreign direct investment: a panel data study for the OECD countries," Working Papers 03/06, Department of Economics, City University London.
    15. WIJEWEERA, Albert & MOUNTER, Stuart, 2008. "A Var Analysis On The Determinants Of Fdi Inflows: The Case Of Sri Lanka," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 8(1), pages 189-198.
    16. Schneider, Friedrich & Frey, Bruno S., 1985. "Economic and political determinants of foreign direct investment," World Development, Elsevier, vol. 13(2), pages 161-175, February.
    17. Majeed, Muhammad Tariq & Ahmad, Eatzaz, 2008. "Human Capital Development and FDI in Developing Countries," MPRA Paper 57514, University Library of Munich, Germany.
    18. Zahir Shah & Qazi Masood Ahmed, 2003. "The Determinants of Foreign Direct Investment in Pakistan: an Empirical Investigation," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 42(4), pages 697-714.
    19. C.E. Moolman & E.L. Roos & J.C. Le Roux & C. B. Du Toit, 2006. "Foreign Direct Investment: South Africa’s Elixir of Life?," Working Papers 200605, University of Pretoria, Department of Economics.
    20. Luiz de Mello, 1997. "Foreign direct investment in developing countries and growth: A selective survey," Journal of Development Studies, Taylor & Francis Journals, vol. 34(1), pages 1-34.
    21. John H Dunning, 1988. "The Eclectic Paradigm of International Production: A Restatement and Some Possible Extensions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 19(1), pages 1-31, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mahmood, Haider, 2018. "An Investigation of Macroeconomic Determinants of FDI Inflows in Bangladesh," MPRA Paper 109448, University Library of Munich, Germany.
    2. Makun, Keshmeer Kanewar, 2016. "Direct Foreign Investment and its Determinants: A Case Study - Gli investimenti diretti esteri e loro determinanti : studio di un caso," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 69(2), pages 151-174.
    3. Haider Mahmood & Tarek Tawfik Yousef Alkhateeb, 2018. "Foreign Direct Investment, Domestic Investment and Oil Price Nexus in Saudi Arabia," International Journal of Energy Economics and Policy, Econjournals, vol. 8(4), pages 147-151.
    4. Valli, Mohammed & Masih, Mansur, 2014. "Is there any causality between inflation and FDI in an ‘inflation targeting’ regime? Evidence from South Africa," MPRA Paper 60246, University Library of Munich, Germany.
    5. Bilgili, Faik & Tülüce, Nadide Sevil Halıcı & Doğan, İbrahim, 2012. "The determinants of FDI in Turkey: A Markov Regime-Switching approach," Economic Modelling, Elsevier, vol. 29(4), pages 1161-1169.
    6. Hian Teck HOON & Frank S T Hsiao & Mei-Chu Wang Hsiao, 2020. "FDI, Exports, and GDP in East and Southeast Asia — Panel Data versus Time-Series Causality Analyses," World Scientific Book Chapters, in: Development Strategies of Open Economies Cases from Emerging East and Southeast Asia, chapter 4, pages 81-129, World Scientific Publishing Co. Pte. Ltd..
    7. Simplice Asongu & Uduak S. Akpan & Salisu R. Isihak, 2018. "Determinants of foreign direct investment in fast-growing economies: evidence from the BRICS and MINT countries," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 4(1), pages 1-17, December.
    8. Argentino Pessoa, 2008. "Multinational Corporations, Foreign Investment, and Royalties and License Fees: Effects on Host-Country Total Factor Productivity," Notas Económicas, Faculty of Economics, University of Coimbra, issue 28, pages 6-31, December.
    9. Chu, Amanda M.Y. & Lv, Zhihui & Wagner, Niklas F. & Wong, Wing-Keung, 2020. "Linear and nonlinear growth determinants: The case of Mongolia and its connection to China," Emerging Markets Review, Elsevier, vol. 43(C).
    10. Vinish Kathuria, 2019. "Growth and Investment: Testing for the Relationship for South Asian Countries," Millennial Asia, , vol. 10(3), pages 337-371, December.
    11. Akpan, Uduak & Isihak, Salisu & Asongu, Simplice, 2014. "Determinants of Foreign Direct Investment in Fast-Growing Economies: A Study of BRICS and MINT," MPRA Paper 56810, University Library of Munich, Germany.
    12. Henrik Hansen & John Rand, 2006. "On the Causal Links Between FDI and Growth in Developing Countries," The World Economy, Wiley Blackwell, vol. 29(1), pages 21-41, January.
    13. Dondashe, Nandipha & Phiri, Andrew, 2018. "Determinants of FDI in South Africa: Do macroeconomic variables matter?," MPRA Paper 83636, University Library of Munich, Germany.
    14. Acaravci, Ali & Ozturk, Ilhan, 2012. "Foreign Direct Investment, Export and Economic Growth: Empirical Evidence from New EU Countries," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 52-67, June.
    15. Alemayehu Geda & Addis Yimer, 2024. "What Drives Foreign Direct Investment into Africa? Insights from a New Analytical Classification of Countries as Fragile, Factor-Driven, or Investment-Driven," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(3), pages 14199-14234, September.
    16. Fedderke, J.W. & Bogetic, Z., 2009. "Infrastructure and Growth in South Africa: Direct and Indirect Productivity Impacts of 19 Infrastructure Measures," World Development, Elsevier, vol. 37(9), pages 1522-1539, September.
    17. Muhammad Arshad Khan, 2007. "Foreign Direct Investment and Economic Growth : The Role of Domestic Financial Sector," Finance Working Papers 22205, East Asian Bureau of Economic Research.
    18. Yapatake Kossele Thales Pacific, 2017. "Slow Growth of Foreign Direct Investment in Central African Republic," Global Business Review, International Management Institute, vol. 18(6), pages 1435-1446, December.
    19. Seng Sothan, 2017. "Causality between foreign direct investment and economic growth for Cambodia," Cogent Economics & Finance, Taylor & Francis Journals, vol. 5(1), pages 1277860-127, January.
    20. Dierk Herzer & Stephan Klasen & Felicitas Nowak-Lehmann D., 2006. "In search of FDI-led growth in developing countries," Ibero America Institute for Econ. Research (IAI) Discussion Papers 150, Ibero-America Institute for Economic Research.

    More about this item

    Keywords

    Inflation; FDI; Asymmetry; ARDL; NARDL; VDC;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:112549. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.