IDEAS home Printed from https://ideas.repec.org/a/eee/reveco/v80y2022icp779-794.html
   My bibliography  Save this article

Foreign direct investment, capital accumulation, and growth: The rise of the Emerging South

Author

Listed:
  • Demir, Firat
  • Lee, Sunhyung

Abstract

Using a unique dataset on bilateral FDI flows between 1990 and 2012, we analyze the heterogeneous growth effects of FDI originating from the North, the Emerging South, and the South in each country group. After controlling for the aggregation bias, sample selection bias, country heterogeneity, and endogeneity issues, and using various estimation techniques and robustness tests, we detect no long-run effects of FDI on the host country per capita GDP growth, independent of its direction. However, we find a significantly positive effect on long-run levels of GDP per capita in the sub-country groups of North–North, Emerging-North, and South-Emerging. The effects are stronger for countries with similar institutional development levels.

Suggested Citation

  • Demir, Firat & Lee, Sunhyung, 2022. "Foreign direct investment, capital accumulation, and growth: The rise of the Emerging South," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 779-794.
    • Handle: RePEc:eee:reveco:v:80:y:2022:i:c:p:779-794
    DOI: 10.1016/j.iref.2022.02.044
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1059056022000648
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.iref.2022.02.044?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Beugelsdijk, Sjoerd & Smeets, Roger & Zwinkels, Remco, 2008. "The impact of horizontal and vertical FDI on host's country economic growth," International Business Review, Elsevier, vol. 17(4), pages 452-472, August.
    2. Nathan Nunn, 2007. "Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(2), pages 569-600.
    3. de Mello, Luiz R, Jr, 1999. "Foreign Direct Investment-Led Growth: Evidence from Time Series and Panel Data," Oxford Economic Papers, Oxford University Press, vol. 51(1), pages 133-151, January.
    4. Maurice Schiff & Yanling Wang, 2008. "North-South and South-South Trade-Related Technology Diffusion: How Important Are They in Improving TFP Growth?," Journal of Development Studies, Taylor & Francis Journals, vol. 44(1), pages 49-59.
    5. Chuck C Y Kwok & Solomon Tadesse, 2006. "The MNC as an agent of change for host-country institutions: FDI and corruption," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 37(6), pages 767-785, November.
    6. Antonio Pesce, 2017. "The Decoupling Of Emerging Economies: Theoretical And Empirical Puzzle," Journal of Economic Surveys, Wiley Blackwell, vol. 31(2), pages 602-631, April.
    7. Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998. "How does foreign direct investment affect economic growth?1," Journal of International Economics, Elsevier, vol. 45(1), pages 115-135, June.
    8. Omar S. Dahi & Firat Demir, 2017. "South–South And North–South Economic Exchanges: Does It Matter Who Is Exchanging What And With Whom?," Journal of Economic Surveys, Wiley Blackwell, vol. 31(5), pages 1449-1486, December.
    9. Ann E. Harrison & Inessa Love & Margaret S. McMillan, 2022. "Global capital flows and financing constraints," World Scientific Book Chapters, in: Globalization, Firms, and Workers, chapter 8, pages 181-213, World Scientific Publishing Co. Pte. Ltd..
    10. Nelson, Richard R & Pack, Howard, 1999. "The Asian Miracle and Modern Growth Theory," Economic Journal, Royal Economic Society, vol. 109(457), pages 416-436, July.
    11. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
    12. Hea‐Jung Hyun, 2006. "Quality of institutions and foreign direct investment in developing countries: Causality tests for cross‐country panels," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 7(3), pages 103-110.
    13. Demir, Firat, 2016. "Effects of FDI Flows on Institutional Development: Does It Matter Where the Investors are from?," World Development, Elsevier, vol. 78(C), pages 341-359.
    14. Amighini, Alessia & Sanfilippo, Marco, 2014. "Impact of South–South FDI and Trade on the Export Upgrading of African Economies," World Development, Elsevier, vol. 64(C), pages 1-17.
    15. Francesco Caselli & Wilbur John Coleman, 2001. "Cross-Country Technology Diffusion: The Case of Computers," American Economic Review, American Economic Association, vol. 91(2), pages 328-335, May.
    16. Aleksynska, Mariya & Havrylchyk, Olena, 2013. "FDI from the south: The role of institutional distance and natural resources," European Journal of Political Economy, Elsevier, vol. 29(C), pages 38-53.
    17. Hui-lin Lin & Eric S. Lin, 2010. "FDI, Trade, and Product Innovation: Theory and Evidence," Southern Economic Journal, John Wiley & Sons, vol. 77(2), pages 434-464, October.
    18. Arvind Panagariya, 2000. "Preferential Trade Liberalization: The Traditional Theory and New Developments," Journal of Economic Literature, American Economic Association, vol. 38(2), pages 287-331, June.
    19. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    20. Bahar, Dany & Hausmann, Ricardo & Hidalgo, Cesar A., 2014. "Neighbors and the evolution of the comparative advantage of nations: Evidence of international knowledge diffusion?," Journal of International Economics, Elsevier, vol. 92(1), pages 111-123.
    21. Bruce Kogut & Harbir Singh, 1988. "The Effect of National Culture on the Choice of Entry Mode," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 19(3), pages 411-432, September.
    22. Daron Acemoglu, 2002. "Directed Technical Change," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(4), pages 781-809.
    23. Garrett, Jinzhuo Z., 2016. "Explaining asymmetries in bilateral FDI flows," International Review of Economics & Finance, Elsevier, vol. 41(C), pages 155-171.
    24. Steve Bond & Asli Leblebicioglu & Fabio Schiantarelli, 2010. "Capital accumulation and growth: a new look at the empirical evidence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(7), pages 1073-1099, November/.
    25. Eugen Dimant & Guglielmo Tosato, 2018. "Causes And Effects Of Corruption: What Has Past Decade'S Empirical Research Taught Us? A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 32(2), pages 335-356, April.
    26. Alvaro Cuervo-Cazurra & Mehmet Genc, 2008. "Transforming disadvantages into advantages: developing-country MNEs in the least developed countries," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 39(6), pages 957-979, September.
    27. William Darity & Lewis S. Davis, 2005. "Growth, trade and uneven development," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 29(1), pages 141-170, January.
    28. Doytch, Nadia & Uctum, Merih, 2011. "Does the worldwide shift of FDI from manufacturing to services accelerate economic growth? A GMM estimation study," Journal of International Money and Finance, Elsevier, vol. 30(3), pages 410-427, April.
    29. Scoones, Ian & Amanor, Kojo & Favareto, Arilson & Qi, Gubo, 2016. "A New Politics of Development Cooperation? Chinese and Brazilian Engagements in African Agriculture," World Development, Elsevier, vol. 81(C), pages 1-12.
    30. Binyam A. Demena & Peter A. G. van Bergeijk, 2017. "A Meta-Analysis Of Fdi And Productivity Spillovers In Developing Countries," Journal of Economic Surveys, Wiley Blackwell, vol. 31(2), pages 546-571, April.
    31. Liu, Xiaming & Parker, David & Vaidya, Kirit & Wei, Yingqi, 2001. "The impact of foreign direct investment on labour productivity in the Chinese electronics industry," International Business Review, Elsevier, vol. 10(4), pages 421-439, August.
    32. Alfaro, Laura & Chanda, Areendam & Kalemli-Ozcan, Sebnem & Sayek, Selin, 2004. "FDI and economic growth: the role of local financial markets," Journal of International Economics, Elsevier, vol. 64(1), pages 89-112, October.
    33. Jonathan I. Dingel, 2017. "The Determinants of Quality Specialization," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(4), pages 1551-1582.
    34. Juan Carlos Hallak, 2010. "A Product-Quality View of the Linder Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 92(3), pages 453-466, August.
    35. Sourafel Girma, 2005. "Absorptive Capacity and Productivity Spillovers from FDI: A Threshold Regression Analysis," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(3), pages 281-306, June.
    36. Usha Nair‐Reichert & Diana Weinhold, 2001. "Causality Tests for Cross‐Country Panels: a New Look at FDI and Economic Growth in Developing Countries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 63(2), pages 153-171, May.
    37. Daron Acemoglu, 2015. "Localised and Biased Technologies: Atkinson and Stiglitz's New View, Induced Innovations, and Directed Technological Change," Economic Journal, Royal Economic Society, vol. 0(583), pages 443-463, March.
    38. Kayalvizhi, P.N. & Thenmozhi, M., 2018. "Does quality of innovation, culture and governance drive FDI?: Evidence from emerging markets," Emerging Markets Review, Elsevier, vol. 34(C), pages 175-191.
    39. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    40. Robert C. Feenstra & John Romalis, 2014. "International Prices and Endogenous Quality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(2), pages 477-527.
    41. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, December.
    42. Chinn, Menzie D. & Prasad, Eswar S., 2003. "Medium-term determinants of current accounts in industrial and developing countries: an empirical exploration," Journal of International Economics, Elsevier, vol. 59(1), pages 47-76, January.
    43. Dutt, Amitava Krishna, 1996. "Southern Primary Exports, Technological Change and Uneven Development," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 20(1), pages 73-89, January.
    44. Laura Alfaro & Andrew Charlton, 2009. "Intra-industry Foreign Direct Investment," American Economic Review, American Economic Association, vol. 99(5), pages 2096-2119, December.
    45. Nair-Reichert, Usha & Weinhold, Diana, 2001. "Causality Tests for Cross-Country Panels: A New Look at FDI and Economic Growth in Developing Countries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 63(2), pages 153-171, May.
    46. Firat Demir & Chenghao Hu, 2016. "Institutional Differences and the Direction of Bilateral Foreign Direct Investment Flows: Are South–South Flows any Different than the Rest?," The World Economy, Wiley Blackwell, vol. 39(12), pages 2000-2024, December.
    47. Paul Krugman, 1995. "Growing World Trade: Causes and Consequences," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 327-377.
    48. Alfaro, Laura & Charlton, Andrew, 2007. "Growth and the quality of foreign direct investment: is all FDI equal?," LSE Research Online Documents on Economics 19666, London School of Economics and Political Science, LSE Library.
    49. Hui-lin Lin & Eric S. Lin, 2010. "FDI, Trade, and Product Innovation: Theory and Evidence," Southern Economic Journal, John Wiley & Sons, vol. 77(2), pages 434-464, October.
    50. Glass, Amy Jocelyn & Saggi, Kamal, 1998. "International technology transfer and the technology gap," Journal of Development Economics, Elsevier, vol. 55(2), pages 369-398, April.
    51. Mariya Aleksynska & Olena Havrylchyk, 2013. "•FDI from the South: The role of institutional distance and natural resources," Post-Print hal-01410591, HAL.
    52. Li, Xiaoying & Liu, Xiaming, 2005. "Foreign Direct Investment and Economic Growth: An Increasingly Endogenous Relationship," World Development, Elsevier, vol. 33(3), pages 393-407, March.
    53. Durham, J.B.J. Benson, 2004. "Absorptive capacity and the effects of foreign direct investment and equity foreign portfolio investment on economic growth," European Economic Review, Elsevier, vol. 48(2), pages 285-306, April.
    54. Matija Rojec & Mark Knell, 2018. "Why Is There A Lack Of Evidence On Knowledge Spillovers From Foreign Direct Investment?," Journal of Economic Surveys, Wiley Blackwell, vol. 32(3), pages 579-612, July.
    55. Dani Rodrik, 2013. "Unconditional Convergence in Manufacturing," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(1), pages 165-204.
    56. Gordon Sirr & John Garvey & Liam A. Gallagher, 2018. "Local conditions and economic growth from South–South FDI," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 27(4), pages 380-388, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gachoki Emilio Munene, 2023. "Foreign Direct Investment, Trade Openness and Economic Growth in Kenya: Empirical Analysis Using ARDL Approach," International Journal of Science and Business, IJSAB International, vol. 28(1), pages 115-126.
    2. Brahim Bergougui & Syed Mansoob Murshed, 2023. "Spillover effects of FDI inflows on output growth: An analysis of aggregate and disaggregated FDI inflows of 13 MENA economies," Australian Economic Papers, Wiley Blackwell, vol. 62(4), pages 668-692, December.

    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. Omar S. Dahi & Firat Demir, 2017. "South–South And North–South Economic Exchanges: Does It Matter Who Is Exchanging What And With Whom?," Journal of Economic Surveys, Wiley Blackwell, vol. 31(5), pages 1449-1486, December.
    2. Cong Minh Huynh & Vu Hong Thai Nguyen & Hoang Bao Nguyen & Phuc Canh Nguyen, 2020. "One-way effect or multiple-way causality: foreign direct investment, institutional quality and shadow economy?," International Economics and Economic Policy, Springer, vol. 17(1), pages 219-239, February.
    3. Demir, Firat, 2016. "Effects of FDI Flows on Institutional Development: Does It Matter Where the Investors are from?," World Development, Elsevier, vol. 78(C), pages 341-359.
    4. Baiashvili, Tamar & Gattini, Luca, 2020. "Impact of FDI on economic growth: The role of country income levels and institutional strength," EIB Working Papers 2020/02, European Investment Bank (EIB).
    5. Bashir Ahmad Joo & Sana Shawl, 2023. "Understanding the Relationship Between Foreign Direct Investment and Economic Growth in BRICS: Panel ARDL Approach," Vikalpa: The Journal for Decision Makers, , vol. 48(2), pages 100-113, June.
    6. Matija Rojec & Mark Knell, 2018. "Why Is There A Lack Of Evidence On Knowledge Spillovers From Foreign Direct Investment?," Journal of Economic Surveys, Wiley Blackwell, vol. 32(3), pages 579-612, July.
    7. Cristina JUDE & Grégory LEVIEUGE, 2013. "Growth Effect of FDI in Developing Economies: the Role of Institutional Quality," LEO Working Papers / DR LEO 2251, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    8. Ausloos, Marcel & Eskandary, Ali & Kaur, Parmjit & Dhesi, Gurjeet, 2019. "Evidence for Gross Domestic Product growth time delay dependence over Foreign Direct Investment. A time-lag dependent correlation study," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 527(C).
    9. Brahim Bergougui & Syed Mansoob Murshed, 2023. "Spillover effects of FDI inflows on output growth: An analysis of aggregate and disaggregated FDI inflows of 13 MENA economies," Australian Economic Papers, Wiley Blackwell, vol. 62(4), pages 668-692, December.
    10. Shima'a Hanafy & Marcus Marktanner, 2015. "Sectoral FDI, Absorptive Capacity and Economic Growth — Empirical Evidence from Egyptian Governorates," MAGKS Papers on Economics 201537, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    11. Stefanie Kleimeier & Roald Versteeg, 2010. "Project finance as a driver of economic growth in low‐income countries," Review of Financial Economics, John Wiley & Sons, vol. 19(2), pages 49-59, April.
    12. Igan, Deniz & Kutan, Ali M. & Mirzaei, Ali, 2020. "The real effects of capital inflows in emerging markets," Journal of Banking & Finance, Elsevier, vol. 119(C).
    13. Firat Demir & Chenghao Hu, 2016. "Institutional Differences and the Direction of Bilateral Foreign Direct Investment Flows: Are South–South Flows any Different than the Rest?," The World Economy, Wiley Blackwell, vol. 39(12), pages 2000-2024, December.
    14. Delgado, Michael S. & McCloud, Nadine & Kumbhakar, Subal C., 2014. "A generalized empirical model of corruption, foreign direct investment, and growth," Journal of Macroeconomics, Elsevier, vol. 42(C), pages 298-316.
    15. Wang, Xiaoying & Anwar, Sajid, 2022. "Institutional distance and China's horizontal outward foreign direct investment," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 1-22.
    16. Marasco, Antonio, 2002. "High tech foreign direct investment and its impact on economic development," MPRA Paper 5390, University Library of Munich, Germany, revised Apr 2005.
    17. Federico Carril‐Caccia & Elena Pavlova, 2020. "Mergers and acquisitions & trade: A global value chain analysis," The World Economy, Wiley Blackwell, vol. 43(3), pages 586-614, March.
    18. Antonio Martuscelli & Michael Gasiorek, 2019. "Regional Integration And Poverty: A Review Of The Transmission Channels And The Evidence," Journal of Economic Surveys, Wiley Blackwell, vol. 33(2), pages 431-457, April.
    19. M. Ayhan Kose & Eswar Prasad & Kenneth Rogoff & Shang-Jin Wei, 2009. "Financial Globalization: A Reappraisal," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(2), pages 143-197.
    20. Christopher Malikane & Prosper Chitambara, 2017. "Foreign Direct Investment, Democracy and Economic Growth in Southern Africa," African Development Review, African Development Bank, vol. 29(1), pages 92-102, March.

    More about this item

    Keywords

    Foreign direct investment; Economic growth; North–South heterogeneity; Capital accumulation;
    All these keywords.

    JEL classification:

    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • P33 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid

    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:eee:reveco:v:80:y:2022:i:c:p:779-794. 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: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620165 .

    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.