Relationship between Foreign Direct Investment, Institutional Quality and Macroeconomic Variables

Using a comprehensive panel data analysis of 110 countries over the time span 2002-2012, this study investigates the impact of institutional quality on foreign direct investment (FDI) by categorizing the countries into ‘developed’ and ‘developing’.The result findings related to developed countries show that a single standard deviation change in institutional quality raises FDI by a factor of 0.297 when legal origins are used as instruments. On the other hand, the results for the developing countries demonstrate that  institutions do not work endogenously with other types of law that govern a country due to an exogeneity issue associated with weak structure of institutions. Keywords: Foreign Direct Investment; Institutions; Developed and Developing Countries JEL Classification numbers : C23, F21, F23, O1

A comparative study of two different numerical schemes for the simulation of nonlinear dynamics of heated falling thin films

In this research, an attempt is made to characterise qualitatively the stability and dynamics of an inclined thin liquid film under the influence of instabilities due to thermo-capillarity and evaporative effects as well as van der Waals intermolecular forces, by employing the implicit finite difference method. The results are compared with solutions obtained by the Fourier spectral method. Flow in thin films of a Newtonian liquid on an inclined plane with an adjacent passive gas layer, is well represented by the Navier-Stokes equations, equation of continuity and associated boundary conditions. Long-wave (lubrication) approximation is applied to simplify the governing equations to arrive at a nonlinear partial differential equation, called equation of evolution (EOE). The spatio-temporal evolution of the interfacial instability in the film caused by internal and/or external effects are studied by numerically solving the EOE using the implicit finite difference method. The results of the numerical simulations of our thin film model are compared with those of a similar problem solved using Fourier spectral method from the literature. Simulations show remarkable agreement in the film dynamics predicted by these two methods. The film rupture times obtained using our implicit finite difference scheme closely match with the values obtained from the Fourier spectral method within less than 1% error. This implies that the implicit finite difference method can be satisfactorily employed for the efficient numerical simulation of the thin film flows, and to decipher its nonlinear dynamics reliably

Purchasing Power Parity Hypothesis: Empirical Validity of Purchasing Power Parity in the Long Run among the Developing and Developed Countries Using Co-integration and OLS Techniques.

This study finds the empirical validity of exchange rate and price relationship implied by purchasing power parity among the seven countries .i.e. (Australia, Canada, Pakistan, India, Japan, Spain and Korea) using the Augmented Dickey Fuller, Engel Granger, Johansen and ordinary least squares econometrics techniques based on quarterly data instead of annually data .We have used both developing and developed countries in the PPP testing and compared the econometric results of developing and developed countries with each other. Using the quarterly data over the time period of 1961 to 2010, We have found the long run validity of purchasing power parity theory among the three developing and four developed countries. We have applied different econometric methodologies, PPP results differ among different econometric techniques. So, it can be implied that choice of price level and appropriate econometric methodology is very important in the PPP testing. Keywords: Purchasing power parity; Exchange rate; Developed and Developing countries

RELATIONSHIP BETWEEN INWARD FOREIGN DIRECT INVESTMENT, DOMESTIC INVESTMENT, FORMAL AND INFORMAL INSTITUTIONS: EVIDENCE FROM CHINA

This study examines relationship between Inward FDI and domestic investment in China, using co-integration and Granger causality analysis (Including bivariate and multivariate Granger causality models). We have used auto-regressive distributed lags(ARDL) econometric methodology technique to define relationship between inward FDI and domestic investment using time series data for China. Our study examines long run effects of FDI inflows on domestic investment over time span 1990-2014 for China using informal, formal institutions and key macroeconomic variables as control variables in the model. The results suggest that conclusions drawn from bivariate model may not be valid because of omission of important control variables. Our results of multivariate model show that there is positive unidirectional causality running from IFDI to DI in the long run. In the short run, both inward FDI and domestic investment do not allow Granger causality

The Long-Run Effect of Outward Foreign Direct Investment and Macroeconomic Variables on Domestic Investment: Evidence from World Major Economies Using Panel ARDL Approach

In this paper, we investigate relationship between outward foreign direct investment flows and domestic investment among thirteen world major economies over time period 1970-2013. From 1970-2013, had outward foreign direct investment flows along with macroeconomic control variables had significant long-term effects on domestic investment among world major economies. Following the latest dynamic techniques of panel data analysis of pooled mean group and dynamic fixed effect estimators proposed by Pesaran et al. (1999), we find strong evidence of positive impact of outward foreign direct investment flows on domestic investment. Pooled mean group estimator results show that one dollar increase in foreign direct investment outflows result in increase of Domestic investment by 0.49 dollars. Dynamic fixed effect result findings also strongly support positive impact of foreign direct investment outflows on domestic investment .i.e. (one dollar increase in foreign direct investment outflows result in increase of domestic investment by 0.87 dollars).Our result findings confirm that foreign direct investment outflows along with  macroeconomic control variables have positive and significant impact on domestic investment. Dumitrescu Hurlin Panel Causality test results show that there is pairwise causality running between the variables. Keywords: Outward FDI; Domestic investment; Cointegration; Panel Dat

Inward FDI, Outward FDI and Domestic Investment: Evidence from Asian Economies Using Panel Data Analysis

This study measures effects of FDI inflows and outflows on domestic investment in Asian economies using panel data analysis. Our estimates using system-Generalized Method of Moments (GMM) suggest that FDI inflows (IFDI) have positive and significant effects on domestic investment but outward FDI (OFDI) is negatively associated with domestic investment. From 2004-2014, OFDI and IFDI had significant long-term effects on domestic investment among the Asian economies. Our system Generalized Method of Moments (GMM) model results show that one dollar increase in FDI inflows leads to increase domestic investment by 0.3081 dollars. Our system Generalized Method of Moments (GMM) model results show that one dollar increase in FDI outflows leads to decrease domestic investment by 0.2704 dollars. Our result findings are robust with different econometric techniques measuring effects of inward FDI and outward FDI on domestic investment among Asian economies. Keywords: FDI inflows; FDI outflows; Domestic investment; Endogeneity; Panel Data JEL Classification numbers: C23; F21; F22; F2

The Long-Run Effect of FDI Inflows on Total Factor Productivity: Evidence from African Countries

From 2001-2014, had foreign direct investment inflows had significant long-term effects on total factor productivity in African countries. Following the latest dynamic techniques of panel data analysis of pooled mean group and mean group estimator (the Pesaran and Smith 1995, Journal of Econometrics 68: 79-113), we find strong evidence of insignificant impact of FDI inflows on total factor productivity. Augmented mean group estimator(AMG) introduced by Eberhardt and Teal (2010, Discussion Paper 515, Department of Economics, University of Oxford) and the Pesaran (2006,Econometrica 74: 967-1012) common correlated effects mean group estimator results also strongly support insignificant impact FDI inflows on total factor productivity in the long run in African economies. Augmented mean group estimator, common correlated effects mean group estimator and pooled mean group estimator result findings show that covariates or control variables (Trade and Domestic investment) have significant effects on total factor productivity in the long run. The result findings show that covariates or control variables are important determinants (factors) in defining exact relationship between FDI inflows and total factor productivity. Keywords: FDI inflows; Total Factor Productivity; Panel Data; Economic growth JEL Classification numbers: C33; F21; F2

The impact of institutional quality on foreign direct investment inflows: evidence for developed and developing countries

This study examines the impact of institutional quality on foreign direct investment (F.D.I.) by categorising the countries as developed or developing. We measured institutional quality by the sum of control of corruption and rule of law indicators. We provide evidence that institutional quality positively and significantly impacts F.D.I. in developed countries; specifically, we find that a one standard deviation change in governance significantly affects F.D.I. by a factor of 0.2225 (using common law and the lagged values of the independent variables as instruments). Ceteris paribus, the results for the developing countries demonstrate that the institutional quality impact is insignificant because of the weak structure of institutions. Result findings strongly support the significance of governance indicators in attracting F.D.I. inflows. From our results, we infer that the relevance of governance indicators tends to be a key point in attracting F.D.I. inflows

Research methods in economics and its implications for capital formation

We explore whether public or private capital augments or obstruct Foreign Direct Investment (FDI) inflows by decomposing Domestic Capital Formation (DCF) into private and public capital formation. To this end, we apply Cross-Sectional Autoregressive Distributed Lags (CS-ARDL) approach to analyze panel time-series data. Our empirical results show that public capital crowds in FDI inflows while private capital crowds out FDI inflows. However, institutional quality significantly attracts FDI inflows for less developing economies. We argue that private and public capital possess different attributes; thus, clubbing them together might result in aggregation bias. We observe a strong connection of good institutional quality with private and public capital to augment foreign capital inflows for developing countries in the long run. Besides, our empirical results suggest that returns are high with quality institutions, especially for developing regions. Our result estimations provide several policy implications

Outward foreign direct investment and domestic investment: evidence from China

This paper examines the relationship between outward foreign direct investment (OFDI) and domestic investment (DI) in China using cointegration and Granger causality analyses (including bivariate and multivariate Granger causality models). The results suggest that the conclusions drawn from a bivariate model may not be valid because of the omission of important control variables. The results of the multivariate model show that there is a positive long-run unidirectional causal relationship running from OFDI to DI In the short run, DI and OFDI do not show Granger causality