Abstract
Abstract. In this paper, we examine the impact of FDI on economic growth condition on the role of quality of institutions. To address our objective, we use the fixed effect and GMM models for analysis. A sample of 36 countries from Sub Saharan Africa was used for period from 2001 to 2015. The empirical results show that FDI has a significant negative effect on economic growth. Institutional quality on the other hand has a positive influence on economic growth. Considering the interaction term between FDI and institutional quality, the empirical evidence show that institutional quality enhances the spillover effect from FDI and therefore do matter for economic growth. Using the GMM model the results confirm that good institutions are necessary for mediating the effects of FDI for economic growth.
Keywords. FDI, Institutional quality, GMM, Economic growth.
JEL. 043, C33, C36.
References
Agbloyor, E.K., Gyeke-Dako, A., Kuipo, R., & Abor, J.Y. (2016). Foreign direct investment and economic growth in SSA. The role of institutions, Thurnderbird International Business Review, 58, 479-497. doi. 10.1002/tie.21791
Ajide, K., Adeniyi, O., & Raheem, I. (2014) Does governance impact on the Foreign Direct Investment–growth nexus in Sub-Saharan Africa? Zagreb International Review of Economics & Business, 17(2), 71-81.
Ajide, K.B., & Raheem, I.D. (2016), Institutions-FDI nexus in ECOWAS countries, Journal of African Business, 17(3), 319-341. doi. 10.1080/15228916.2016.1180778
Arellano, M., & Bover, O. (1995). Another look at the instrumental-variable estimation of errorcomponents models. Journal of Econometrics, 68(1), 29-52. doi. 10.1016/0304-4076(94)01642-D
Azman-Saini, W.N., Baharumshah, A.Z., & Law, S.H. (2010). Foreign direct investment, economic freedom and economic growth: International evidence. Economic Modelling, 27(5), 1079-1089. doi. 10.1016/j.econmod.2010.04.001
Barro, R. (1991). Economic growth in a cross-section of countries, Quarterly Journal of Economics, 106(2), 407-443. doi. 10.2307/2937943
Barro, R., & Sala-i-Martin, X. (1997). Technological diffusion, convergence, and growth, Journal of Economic Growth, 2(1), 1-26. doi. 10.1023/A:1009746629269
Bissoon, O. (2012). Can better institutions attract more foreign direct investment? Evidence from developing countries, International Research Journal of Finance and Economics, 82, 142-158.
Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115-143. doi. 10.1016/S0304-4076(98)00009-8
Bonnie, G.B., Quan, V.L., & Rishi, M. (2012). Foreign direct investment and institutional quality: some empirical evidence, International Review of Financial Analysis, 21, 81-89. doi. 10.1016/j.irfa.2011.10.001
Borensztein, E., De Gregorio J., & Lee J.W. (1998). How does foreign direct investment affect economic growth? Journal of International Economics, 45(1), 115-135. doi. 10.1016/S0022-1996(97)00033-0
Bruno, R., & Campos, N. (2013). Reexamining the conditional effect of foreign direct investment’, IZA Discussion Paper, No.7458. [Retrieved from].
Buchanan, B., Le, Q., & Rishi, M. (2012). Foreign direct investment and institutional quality: Some empirical evidence, International Review of Financial Analysis, 21(C), 81-89. doi. 10.1016/j.irfa.2011.10.001
Colen, L., Maertens M., & Swinnen, J.F.M. (2008). Foreign direct investment as and engine for economic growth and human development: A review of the arguments and empirical evidence. Working Paper, No.IAP VI/06. [Retrieved from].
Compton, R.A., Giedeman, D.C., & Hoover, G.A. (2011). Panel evidence on economic freedom and economic growth in the United States. European Journal of Political Economy, 27(3), 423-435. doi. 10.1016/j.ejpoleco.2011.01.001
Dey, A. (2008). Corporate governance and agency conflicts. Journal of Accounting Research, 46(5), 1143-1181. doi. 10.1111/j.1475-679X.2008.00301.x
Dunning, J.H. (1981). Explaining the international direct investment position of countries: Towards a dynamic or developmental approach, WeltwirtschaftlichesArchiv, 119, 30-64. doi. 10.1007/BF02696577
Grossman, G., & Helpman, E. (1991). Quality ladders in the theory of growth, The Review of Economic Studies, 58(1), 43-61. doi. 10.2307/2298044
Kaufmann, D.C. et al. (2005). Governance matters IV: Governance indicators for 1996-2004. World Bank Policy Research Working Paper, No.3630. Washington. [Retrieved from].
Hymer, S.H. (1976), The International Operations of National Firms: A Study of Direct Foreign Investment, Cambridge, MA: MIT Press.
Kinshita, Y., & Lu, C. (2006). On the role of Absorptive capacity FDI Matters to Growth. William Davidson Institute Working Paper, No.845. [Retrieved from].
Mankiw, N.G., Romer, D., & David, W. (1992). A Contribution to the empirics of economic growth, Quarterly Journal of Economics, 107(2), 407-437. doi. 10.2307/2118477
Massoud, N. (2008). Assessing the employment effect of FDI inflows to Egypt: Does the mode of entry matter?. International Conference on The Unemployment Crisis in the Arab Countries, Cairo, Egypt.
Nawaz, S. (2015). Growth effects of institutions: A disaggregated analysis, Economic Modelling, 45, 118-126. doi. 10.1016/j.econmod.2014.11.017
Okada, K. (2013). The interaction effects of financial openness and institutions on international capital flows. Journal of Macroeconomics, 10.1016/j.jmacro.2012.11.003
Roodman, D.M. (2009). A note on the theme of too many instruments. Oxford Bulletin of Economics and Statistics, 71(1), 135-158. doi. 10.1111/j.1468-0084.2008.00542.x
Samimi, A.J., & Ariani, F. (2010). Growth and FDI in OIC countries. Australian Journal of Basic and Applied Sciences, 4(10), 4880-4882.
Tun, Y.L., Azman-Saini, W.N.W., & Law, S.H. (2012) International evidence on the link between foreign direct investment and institutional quality, Engineering Economics, 23(4), 379-386. doi. 10.5755/j01.ee.23.4.2569
Vernon, R. (1966). International investment and international trade in the product cycle. Quarterly Journal of Economics. 80(2), 190-207. doi. 10.2307/1880689
Yamin, M., & Sinkovics, R.R. (2009). Infrastructure or foreign direct investment? An examination of the implications of MNE strategy for economic development. Journal of World Business, 44(2), 144-157. doi. 10.1016/j.jwb.2008.05.004
