ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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FDI Inflows into Select Emerging Market Economies

A Macroeconomic Investigation Using Panel Techniques

Empirical evidence explaining foreign direct investment inflows into big emerging markets from 2000 to 2018 is investigated by unitising the econometric methods like panel unit root tests, panel cointegration tests and panel estimation with the generalised method of moments. Causal effects are also checked for each of these variables.

Foreign capital inflows, particularly foreign direct investments (FDIs), have been a focus of much research over the past few decades. This is not surprising when one considers the efficacy of FDI in shaping and transforming the economic landscapes of nations, especially in the case of emerging economies. Rapid increases in flows of foreign capital to emerging market countries (EMCs) have generally resulted in higher growth. The 1990s witnessed a surge in FDI flows after the development of better means of communication and information processing. What followed was a rise in the amounts of foreign capital flows as well as the variety of financial tools utilised to enable such flows. As a consequence, this period also witnessed a rapid increase in international trade and levels of investment.

Following the successful tackling of the global financial crisis in 2008, the world is now primed for the next surge in foreign capital flows where the emerging markets have become the central players powering the global engine of growth. However, in 2017, there was a sharp decline in global flows of FDI (UNCTAD 2018). Such a decrease in the size of the FDI pie is cause for alarm for a lot of countries, particularly emerging economies. Various studies have found a strong causal relation between the increase in levels of inflows of FDI and the growth of gross domestic product (GDP) (Hansen and Rand 2006; Herzer et al 2008; Hsiao and Hsiao 2006; Nair-Reichert and Weinhold 2001).

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Updated On : 18th Oct, 2023
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