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Foreign Direct Investment, Economic Growth, and Political Instability

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  • Kevin Williams

    (The Department of Economics, The University of the West Indies, St. Augustine Campus)

Abstract

This paper studies the relationship between FDI and economic growth in a system of simultaneous equations framework. The system of simultaneous equations model exploits that the relationship between FDI and growth is endogenously determined with respect to each other. Our empirical results yield that growth responds significantly positive to FDI. FDI on the other hand does not respond significantly to growth. In addition, we construct several dimensions of political instability and document that political instability has differential effect on FDI and growth. We show that the effect that these dimensions of political instability have on growth and FDI is not different in Sub-Saharan Africa, a region that experiences high incidence of politically instability.

Suggested Citation

  • Kevin Williams, 2017. "Foreign Direct Investment, Economic Growth, and Political Instability," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 42(2), pages 17-37, June.
    • Handle: RePEc:jed:journl:v:42:y:2017:i:2:p:17-37
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    References listed on IDEAS

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    Cited by:

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    2. Samba Diop & Simplice A. Asongu, 2023. "Trust Institutions, Perceptions of Economic Performance and the Mitigating role of Political Diversity in Sub-Saharan Africa," Working Papers of the African Governance and Development Institute. 23/013, African Governance and Development Institute..
    3. Zeddam Ahmed Amine & Dahmani Mohamed Driouche & Hamrit Abdelatif, 2021. "Informal Sector and International Capital Movement: New Evidence from Some Petroleum Countries," Economics and Business, Sciendo, vol. 35(1), pages 117-132, January.
    4. Dzingai Francis Chapfuwa & Peter Baur, 2020. "Institutions, Foreign Direct Investment (Fdi) And Economic Growth: Does The Existence Of Strategic Natural Resources Matter?," Review of Socio - Economic Perspectives 202061, Reviewsep.
    5. Yunpeng Wang & Chun-Ping Chang, 2023. "The effect of policy stability on clean energy investment," Economic Change and Restructuring, Springer, vol. 56(1), pages 327-344, February.
    6. Samba Diop & Simplice A. Asongu, 2022. "Trust Institutions, Perceptions of Economic Performance and the Mitigating role of Political Diversity," Working Papers 22/056, European Xtramile Centre of African Studies (EXCAS).
    7. Ummya Salma & Md. Fazlul Huq Khan & Md. Masum Billah, 2023. "Foreign Capital and Economic Growth: Evidence from Bangladesh," Papers 2312.04695, arXiv.org.

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    More about this item

    Keywords

    Foreign Direct Investment; Economic Growth; Political Instability;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions

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