U.S. foreign direct investment in Latin America and the Caribbean: a case of remittances and market size

This article investigates the effect of remittances on U.S. foreign direct investment (FDI) flows to Latin America and the Caribbean (LAC). It covers 26 countries for the period 1983–2010. The results show a positive and significant impact of remittances on U.S. FDI flows. However, this effect depends upon the level of gross domestic product (GDP) per capita of the host country. On average, the results show that increasing remittances by one standard deviation increases U.S. FDI flows by 0.44 percent a year. Also, host country demand positively affects U.S. FDI flows, which supports the market size hypothesis.     

Capital flows and economic growth revisited: evidence from five Sub-Saharan African countries

The study examines the differential effects of capital flows on economic growth in five Sub-Saharan African (SSA) countries over the period 1970–2014. Using the autoregressive distributed lag methodology, the findings show that in the long-run capital flows (i.e. foreign direct investment (FDI), aid, external debt, and remittances) have different effects on economic growth. FDI has a significant positive effect in Burkina Faso and negative effects in Gabon and Niger whereas the impact of debt is negative in all countries. Aid, however, promotes growth in Niger and Gabon whiles it deters growth in Ghana. Remittances, on the other hand, have a significant positive effect in Senegal. Finally, gross capital formation is significant in most of the countries and the impact of trade is mixed. These results suggest that the benefits of capital flows in SSA have been overemphasized.     

Remittances, Financial Market Development, and Economic Growth: The Case of Latin America and the Caribbean

Within a theoretical framework, the author analyzes the effects that both workers' remittances and financial intermediation have on economic growth. It is found, among other things, that remittances can have significant positive long-run effects on growth. The author confronts the implications of the theoretical model proposed with panel data for countries in Latin America and the Caribbean. After considering the effect of long-run investment and demographic variables, and controlling for fixed time and country effects, the empirical analysis indicates that financial intermediation tends to increase the responsiveness of growth to remittances. The overall conclusion is that making financial services more generally available should lead to even better use of remittances, thus boosting growth in these countries.     

Do Financial and Institutional Variables Enhance the Impact of Remittances on Economic Growth in Latin America and the Caribbean? A Panel Cointegration Analysis

Using recently developed panel unit root and panel cointegration tests and the Fully-Modified OLS methodology (FMOLS), this paper estimates the impact of remittances on the economic growth of selected upper and lower income Latin American & Caribbean (LAC) countries over the 1990–2007 period. Despite the large flow of remittances to the region, there have been relatively few empirical studies assessing the impact of remittances on economic growth in LAC. Panel unit root tests suggest that several of the macro variables included in the model exhibit unit roots, yet, at the same time, Pedroni’s panel cointegration test determined that there is a cointegrating relationship among the variables in the estimated model. The FMOLS estimates suggest that remittances have a positive and significant effect on economic growth in both groups of countries. The estimates also indicate that both the degree of economic freedom and credit provided by the banking system have a positive and significant effect on economic growth in upper (middle) income LAC countries. The sign of the interaction term between remittances and the credit (and EFI) variables suggest that remittances act as substitutes for these variables. Finally, the effect of remittances on both sets of countries is stronger in the presence of a financial (credit) variable.     

The effects of remittances,foreign direct investment,and foreign aid on economic growth: An empirical analysis

The Sustainable Development Goals have refocused attention on ways of providing external finance to support development. Because they have different motivations and work through different modalities, remittances, foreign direct investment (FDI), and official development assistance may be expected to have different consequences for economic growth. Existing empirical evidence suggests that both positive and negative effects are associated with each source of finance. We use both a dynamic panel model and a fixed effects model to calculate the overall effects of each source of finance in isolation and taken together over the period 1976–2015. We include a range of control variables to allow for other potential influences on economic growth. We disaggregate the effects across geographical regions and income levels to test for heterogeneity. We also undertake a series of robustness checks. Our results suggest that FDI has a significant positive effect on economic growth, whereas remittances have a significant and negative effect. The effect of foreign aid is more ambiguous but is usually insignificant. The article offers an interpretation of the results drawing on ideas from the relevant theory.     

DOES FOREIGN DIRECT INVESTMENT PROMOTE ECONOMIC GROWTH? EVIDENCE FROM EAST ASIA AND LATIN AMERICA

Although there is considerable evidence on the link between foreign direct investment (FDI) and economic growth in developing countries, causal patterns of the two variables has not been investigated yet with a reliable procedure. This article provides an empirical assessment of the issue by using data for 11 economies in East Asia and Latin America. Although FDI is expected to boost host economic growth, it is shown that the extent to which FDI is growth-enhancing appears to depend on country-specific characteristics. Particularly, FDI tends to be more likely to promote economic growth when host countries adopt liberalized trade regime, improve education and thereby human capital conditions, encourage export-oriented FDI, and maintain macroeconomic stability.     

Causal interactions between CO2 emissions,FDI, and economic growth: Evidence from dynamic simultaneous-equation models

In this article, we investigate the causality links between CO₂ emissions, foreign direct investment, and economic growth using dynamic simultaneous-equation panel data models for a global panel of 54 countries over the period 1990–2011. We also implement these empirical models for 3 regional sub-panels: Europe and Central Asia, Latin America and the Caribbean, and the Middle East, North Africa, and sub-Saharan Africa. Our results provide evidence of bidirectional causality between FDI inflows and economic growth for all the panels and between FDI and CO₂ for all the panels, except Europe and North Asia. They also indicate the existence of unidirectional causality running from CO₂ emissions to economic growth, with the exception of the Middle East, North Africa, and sub-Sahara panel, for which bidirectional causality between these variables cannot be rejected. These empirical insights are of particular interest to policymakers as they help build sound economic policies to sustain economic development.     

WHAT MAKES INTERNATIONAL CAPITAL FLOWS PROMOTE ECONOMIC GROWTH? AN INTERNATIONAL CROSS‐COUNTRY ANALYSIS

This paper re‐examines the relationship between international capital flows and economic growth within the context of various ‘conditional factors’ that possibly have the potential to influence such relationships. It achieves this by employing panel data for 80 countries that cover 1976–2007. International capital inflow is broken down into foreign direct investments (FDI) and foreign portfolio investments (FPI). We find interesting evidence that only FDI has a positive effect on growth and that FPI has an unfavorable, if not negative, effect on growth. The conditional variables of banking liberalization, high‐income level, twin crises, lower corruption, and human capital mitigate the positive impacts of FDI on growth. In contrast, the middle‐income level and good shareholder protection have a positive effect. As concerns FPI, the level of financial liberalization, being in a Latin American region, the wealth of countries, and market governance all influence the way that FPI affects growth, whereas the conditional variables of twin crises and human capital do not influence the effect of FPI on economic growth.     

FDI in space: Spatial autoregressive relationships in foreign direct investment

There are a number of theoretical reasons why foreign direct investment (FDI) into a host country may depend on the FDI in proximate countries. Such spatial interdependence has been largely ignored by the empirical FDI literature, with only a couple recent papers accounting for such issues in their estimation. This paper conducts a general examination of spatial interactions in empirical FDI models using data on US outbound FDI activity. We find that estimated relationships of traditional determinants of FDI are surprisingly robust to inclusion of terms to capture spatial interdependence, even though such interdependence is estimated to be significant. However, we find that both the traditional determinants of FDI and the estimated spatial interdependence are quite sensitive to the sample of countries one examines.     

The role of exports,FDI and imports in development: evidence from Sub-Saharan African countries

The disappointing economic performance of Sub-Saharan African (SSA) economies in the late 1980s prompted reforms in foreign trade and Foreign Direct Investment (FDI) in the early 1990s. Using the Autoregressive Distributed Lag (ARDL) approach and Pedroni panel estimation procedures that allow for heterogeneity, this study found that exports and FDI have a significant impact on economic growth. Granger-type causality tests show the interrelatedness of exports, FDI, imports and income variables. The results also provide evidence of a two-stage causal chain of exports, imports and income. This article calls for more market-oriented policy reforms in SSA countries.     

Growth effects of FDI in 80 developing economies: the role of policy reforms and institutional constraints

Theoretical and empirical literatures have identified several channels through which foreign direct investment (FDI) influences economic growth. This paper examines the impact of FDI on economic output growth per worker using aggregate production function augmented with FDI inflows, economic policy reforms and institutional constraints. The paper covers 80 developing countries over the period 1980–2006. We use panel data and employ fixed, random effects and GMM methods for estimation. Our results highlight the importance of FDI, policy reforms and institutional development for growth in developing economies. Finally, we demonstrate that irrespective of reforms and institutions, an increase in FDI affects output growth positively.     

Remittances,financial development,and growth

Despite the increasing importance of remittances in total international capital flows, the relationship between remittances and growth has not been adequately studied. This paper studies one of the links between remittances and growth, in particular how local financial sector development influences a country's capacity to take advantage of remittances. Using a newly-constructed dataset for remittances covering about 100 developing countries, we find that remittances boost growth in countries with less developed financial systems by providing an alternative way to finance investment and helping overcome liquidity constraints. This finding controls for the endogeneity of remittances and financial development, does not depend on the particular measure of financial sector development used, and is robust to a number of robustness tests, including threshold estimation. We also provide evidence that there could be an investment channel trough which remittances can promote growth especially when the financial sector does not meet the credit needs of the population.     

Growth and Foreign Direct Investment in the Pacific Island countries

Achieving sustained high rates of economic growth in Pacific countries has proved incredibly challenging. Despite many being rich in natural resources, receiving high levels of foreign aid and being open to external trade, the economic growth rates of Pacific Island countries are the lowest and most volatile for all groups of developing countries. This paper examines the impact of Foreign Direct Investment (FDI) to the Pacific region. Results from the estimation of a number of empirical models suggest that the impact of FDI is lower in Pacific countries than it is in host countries on average. A 10% increase in the ratio of FDI to host Gross Domestic Product (GDP) is associated with higher growth of about 2% in all countries on average. The impact in Pacific countries falls to between 0.1 and 0.4%. A number of explanations for this finding are provided including some empirical evidence that FDI displaces domestic investment in the region.     

Financial flows and economic growth in developing countries

This paper assesses the impact of financial flows and their composition on the real exchange rate and on economic growth for a sample of low- and middle-income countries over the period of 1980–2012. Financial flows can directly support economic growth by relaxing constraints on domestic resources, but can also indirectly weaken growth through appreciation of the real exchange rate. We use the generalized method of moments (GMM) for dynamic panel. Results show that net financial flows affect economic growth both directly and indirectly: (i) a one percent increase in total financial flows appreciates the real exchange rate by 0.5 percent; (ii) the real exchange rate appreciation effect of remittances is twice the effect of aid and ten times greater than the effect of Foreign Direct Investments; (iii) financial flows stimulate economic growth regardless of the development level. An increase of $10 per capita financial flows leads to a gain of 0.08 points of annual growth. This gain amounts to 0.15 when we control for the negative impact of the real exchange rate. Instability of market-oriented flows, such as FDI and portfolio investments, exacerbates instability of the economic growth rate.     

Does human capital constrain the impact of foreign direct investment and remittances on economic growth in Ghana?

This article empirically investigates whether human capital constrains the impact of Foreign Direct Investment (FDI) and remittances on economic growth in Ghana. An economic growth model for Ghana is specified and estimated using Fully Modified Ordinary Least Squares (FMOLS) estimator and employing annual data spanning the period 1965 to 2008. Empirical results indicate that FDI and remittances are key determinants of economic growth in Ghana. Results indicate that human capital enhances the impact of FDI and remittances on economic growth. Although both government expenditure and trade openness are growth-enhancing, government expenditure appears to crowd-out private investment. Empirical results also indicate that domestic inflationary pressures, unstable political environment and volatile global economy exert a negative impact on economic growth in Ghana.     

Differential Impacts of Foreign Capital and Remittance Inflows on Domestic Savings in Developing Countries: A Dynamic Heterogeneous Panel Analysis

The study examines the role of foreign capital and remittance inflows in the domestic savings of 63 developing countries for 1971–2010, paying attention to likely differential effects of FDI, portfolio investment, foreign aid and remittances. The conventional homogeneous panel estimates suggest that foreign aid and remittance flows have a significant negative impact on domestic savings. However, these techniques ignore cross‐section dependence and parameter heterogeneity properties and hence yield biased and inconsistent estimates. When we allow for parameter heterogeneity and cross‐sectional dependence by employing Pesaran's ( 2006 ) Common Correlated Effects Mean Group estimator technique, only remittances crowd out savings.     

Bankruptcy costs,economic policy uncertainty,and FDI entry and exit

In this paper, we examine how the effect of economic policy uncertainty on foreign direct investment (FDI) entry and exit varies with the cost of bankruptcy resolution. Using a sample of bilateral FDI entry and exit for 23 countries and areas from 2004 to 2012, we find that an increase in bankruptcy costs in a country exacerbates the dampening effect of economic policy uncertainty on both FDI entry and exit. Subsample analysis reveals that the bankruptcy resolution channel only exists in high political risk countries. We also find that the bankruptcy resolution channel does not exist for foreign portfolio investment, which is consistent with real option theory. Broadly put, our contribution is at the nexus of institutional theory and FDI, as we identify the bankruptcy resolution channel through which economic policy uncertainty affects FDI entry and exit.     

中国式分权下地方政府FDI税收竞争的策略性及其经济增长效应

中国式分权机制下,政治和经济双重激励使地方政府竞相降低税率吸引FDI流入,本文考察了这种税收竞争的策略性及其对FDI经济增长效应的影响。模型表明地区间策略性税收竞争将通过降低外资质量影响FDI经济增长效应。使用1999-2006年省级面板数据进行实证分析,回归结果表明,经济发展水平相近的地区间外资企业实际所得税率具有显著的空间正相关性;税收优惠对FDI经济增长效应具有明显的阻碍作用;并且税收优惠幅度越大,阻碍作用越强。因此,我国需要加大对地方政府招商引资行为的监督和约束,以使地方政府放弃对FDI的盲目追捧,转而注重FDI质量,提高FDI对国民福利的促进作用。     

Remittances and financial development in Latin America and the Caribbean countries: A dynamic approach

Despite the importance of remittances in total international flows, the conclusion of the studies on the relationship between remittances and financial development, is still not completely unanimous, particularly in Latin America and the Caribbean. However, financial development matters for growth and poverty alleviation and financial inclusion have many beneficial effects for households. We examine the relationship between remittances and financial sector development with several dynamic panel data methods. We find a positive, significant, and robust bidirectional link between remittances and financial development for the panel of 32 countries.     

Foreign direct investment,growth and income inequality in less developed countries

How does foreign direct investment (FDI) affect economic growth in less developed countries (LDCs)? What is its association with changes in the income distribution? This paper empirically examines these issues within a cross section of less developed countries between 1970 and 1989. FDI is positively associated with economic growth within this sample of countries. However, there is no strong association between FDI and changes in income inequality within these same countries and over this same time period. Hence, there is no evidence that FDI is increasing income inequality within this group of LDCs.