With the relocation of firms output to the previously peripheral country, wage rate falls due to release of resources from manufacturing output in manufacturing center. FDI is positively correlated with economic growth in the short run and long run, but it is not a significant factor for economic growth in Sri Lanka.
The impact of foreign direct investment FDI on host country economic growth is a debatable issue in the recent economic literature. Even with the traditional belief of FDI to economic growth, empirical literature finds a positive, negative or weak relationship between FDI and economic growth.
The result shows long-run equilibrium relationship between FDI and economic growth. International Journal of Innovation and Economic Development, 3 5pp. FDI-growth relationship is stronger in regional unite variation than in country variation because of a region is a larger unite hosting sufficiently different type of FDI.
Hence, a country level study with specific conditions provides policy directions to achieve economic goals for developing countries. The empirical findings will provide policy implications related to FDI-economic growth nexus for developing countries like Sri Lanka.
He emphasizes the need for more greenfield investment expanding manufacturing sector to increase export and economic growth. Development strategy of the coalition government which came to power in is to facilitate investment both in domestic and foreign focusing on job creation, rural development, linking up to the global value chain and attracting more foreign direct investments ADB, Sri Lankan economy is facing many challenges at present.
Macroeconomic stability of a country is strongly affected by FDI- growth relationship. No evidence finds to prove that FDI beneficial to developing countries than developed. Further it is argued that high-tech knowledge, technology, and managerial skills can be spill-over from foreign firms to domestic firms improving the productivity of local firms Athukorala, ; Balasubramanyam et al.
In an important study conducted by Borensztein et al. ADB stated that Sri Lanka has been moving toward a debt trap due to inability to service foreign loans, high fiscal deficit, and limited foreign currency reserves. It is also found that FDI is less significant to predict economic growth compared to other variables.
Sri Lanka has been performing poorly in terms of attracting FDI. The study is based on the standard neoclassical growth model and find a strong causal link between FDI to GDP in both short and long run.
Cointegration and error correction models are applied to test the short and long-run relationship between the variables. Having a better stock of human capital, sound macroeconomic policies, and institutional stability are found as a precondition for FDI driven growth.
Countries have to be careful when implementing policies attracting FDI that is complementarity to local production. The study finds no effect of FDI on economic growth neither a long run nor short run for the majority of countries. Belloumi analyzes the relationship of FDI, trade openness and economic growth in Tunisia for the period of FDI regards as a growth-promoting factor like domestic investment and it has a long run impact on GDP irrespectively of the level of development.
FDI may positively relate to an increase in total factor productivity rather than augmentation of domestic capital. The results of the study go against the generally accepted idea of the positive impact of FDI on economic growth to be automatic.
The effect of FDI on economic growth differ between countries, type, and sector of destination. Due to this, more resources are shifted to innovating activities in technologically advanced countries.
Masry finds very weak and non-significant effect of FDI on economic growth in Egypt over the period of FDI tends to have non-significant or even negative impacts on economic growth in host countries.
Moyo () carried out a study on the impact of.
We test the effect of foreign direct investment (FDI) on economic growth in a cross-country regression framework, utilizing data on FDI flows from industrial countries to 69 developing countries over the last two decades.
Our results suggest that FDI is an important vehicle for the transfer of. The author described that foreign direct investment (FDI) is often seen as an important channel for economic growth in the developing countries.
It affects the economic growth by stimulating domestic investment, increasing human capital formation and by facilitating the technology transfer in the host countries. impact of FDI and other growth factors on the Chinese economy.
The panel approach allows one to capture province-specific differences that are not reflected in cross-section estimates. The main results may be summarized as follows. The direct impact and spillovers of FDI on income growth are significantly positive, and they seem to.
factors, and other growth determinants, the data do not suggest a strong independent impact of FDI on economic growth. In terms of policy implications, this paper’s analyses – along with the influential microeconomic study by.
EFFECTS OF REMITTANCE AND FDI ON THE ECONOMIC GROWTH OF BANGLADESH Riduanul Mustafa1, S.M. Rakibul Anwar2 1 Lecturer - Economics, Department of Business Administration, has a positive impact on the economic growth of Bangladesh(Manni and Afzal ).A positive.Download