Article Sidebar
Main Article Content
Abstract
Purpose ― The main objective is to examine the effects of foreign direct investment and trade openness on economic growth (SDG-8.1) about economic growth amid crises in 30 Asian economies.
Design/methodology/approach ― The effects of FDI and trade openness on economic growth in the Asian region are examined using the fixed-effects model, panel corrected standard errors (PCSE), and generalized method of moments (GMM) estimations. The study also measures the long-run effects of the estimates and the granger causality tests.
Findings ― The findings revealed that both FDI and trade openness contribute to boosting economic growth in Asian economies, and the effect is also persistent in the long run. We also find that the Asian and global financial collapse shocks in 1997-1998 and 2008-2009, respectively, adversely affected the region's economic growth. Additionally, the economic growths of some Asian countries are below the targeted level set in SDG-8.1.
Practical implications ― The Asian countries should adopt appropriate policy measures for encouraging the inflow of FDI and cross-border trade of goods and services as it is evident that the inflow of FDI and open trade will improve local human capital and technological capabilities of the industries, which will ultimately help to enhance stable economic growth.
Originality/value ― This study is unique in accompanying the Asian financial crisis and world recession in studying the effects of FDI and trade openness on SDG-8.1 in Asian economies.
Keywords
Article Details
Copyright (c) 2022 Rabiul Hossain
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
Authors who publish with this journal agree to the following terms:
- Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution-ShareAlike 4.0 International License that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
- Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.
- Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See The Effect of Open Access).
Economic Journal of Emerging Markets by Center for Economic Studies, Universitas Islam Indonesia is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
References
- Acharyya, J. (2009). FDI, growth and the environment: Evidence from India on CO2 emission during the last two decades. Journal of Economic Development, 34(1), 43–58. https://doi.org/10.35866/caujed.2009.34.1.003
- Afonso, A., & Blanco-Arana, M. C. (2022). Financial and economic development in the context of the global 2008-09 financial crisis. International Economics, 169, 30–42. https://doi.org/10.1016/j.inteco.2021.11.006
- Ahmed, E. M. (2012). Are the FDI inflow spillover effects on Malaysia’s economic growth input driven? Economic Modelling, 29(4), 1498–1504. https://doi.org/10.1016/j.econmod.2012.04.010
- Alfaro, L., Chanda, A., Kalemli-Ozcan, S., & Sayek, S. (2010). Does foreign direct investment promote growth? Exploring the role of financial markets on linkages. Journal of Development Economics, 91(2), 242–256. https://doi.org/10.1016/j.jdeveco.2009.09.004
- Arabiyat, T. S., Mdanat, M., & Samawi, G. (2020). Trade openness, inclusive growth, and inequality: Evidence from Jordan. The Journal of Developing Areas, 54(1). https://doi.org/10.1353/jda.2020.0008
- Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economic Studies, 58(2), 277–297. https://doi.org/10.2307/2297968
- Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error components models. Journal of Econometrics, 68(1), 29–51. https://doi.org/10.1016/0304-4076(94)01642-D
- Armeanu, D., Vintilă, G., Andrei, J. V., Gherghina, Ş. C., Drăgoi, M. C., & Teodor, C. (2018). Exploring the link between environmental pollution and economic growth in EU-28 countries: Is there an environmental Kuznets curve? PLOS ONE, 13(5), 1–28. https://doi.org/10.1371/journal.pone.0195708
- Baharumshah, A. Z., & Almasaied, S. W. (2009). Foreign direct investment and economic growth in Malaysia: Interactions with human capital and financial deepening. Emerging Markets Finance and Trade, 45(1), 90–102. https://doi.org/10.2753/REE1540-496X450106
- Carvalho, T. P., Soares, F. A. A. M. N., Vita, R., da P. Francisco, R., Basto, J. P., & Alcalá, S. G. S. (2019). A systematic literature review of machine learning methods applied to predictive maintenance. Computers & Industrial Engineering, 137, 106024. https://doi.org/10.1016/j.cie.2019.106024
- Chaudhury, S., Nanda, N., & Tyagi, B. (2020). Impact of FDI on economic growth in South Asia: Does nature of FDI Mmatters? Review of Market Integration, 12(1–2), 51–69. https://doi.org/10.1177/0974929220969679
- Chen, S., Zhang, H., & Wang, S. (2022). Trade openness, economic growth, and energy intensity in China. Technological Forecasting and Social Change, 179, 121608. https://doi.org/10.1016/j.techfore.2022.121608
- Dumitrescu, E.-I., & Hurlin, C. (2012). Testing for Granger non-causality in heterogeneous panels. Economic Modelling, 29(4), 1450–1460. https://doi.org/10.1016/j.econmod.2012.02.014
- Fayissa, B., & Nsiah, C. (2010). The impact of remittances on economic growth and development in Africa. The American Economist, 55(2), 92–103. https://doi.org/10.1177/056943451005500210
- Frankel, J. A., & Romer, D. H. (1999). Does trade cause growth? American Economic Review, 89(3), 379–399. https://doi.org/10.1257/aer.89.3.379
- Ghosh Roy, A., & den Berg, H. F. (2006). Foreign direct investment and economic growth: A time-series approach. Global Economy Journal, 6(1), 1850084. https://doi.org/10.2202/1524-5861.1130
- Jalles, J. T. (2012). Openness, regional trade agreements and growth: Evidence from Asia. Asian Economic Journal, 26(1), 63–85. https://doi.org/10.1111/j.1467-8381.2011.02073.x
- Kizilkaya, O., Ahmet, A., & Akar, G. (2016). Dynamic relationship among foreign direct investments, human capital, economic freedom and economic growth: Evidence from panel cointegration and panel causality analysis. Theoretical and Applied Economics, 23(3), 127–140.
- Kotrajaras, P. (2013). Foreign direct investment and economic growth: A comparative study among East Asian countries. Applied Economics Journal, 17(2), 12–26.
- Li, F., & Zhang, S. (2022). Does financial crisis change the relationship between bank development and economic growth? Evidence from US states. PLOS ONE, 17(4), 1–19. https://doi.org/10.1371/journal.pone.0267394
- Lyroudi, K., Papanastasiou, J., & Vamvakidis, A. (2004). Foreign direct investment and economic growth in transition economies. South-Eastern Europe Journal of Economics, 2(1), 97–110.
- Makki, S. S., & Somwaru, A. (2004). Impact of foreign direct investment and trade on economic growth: Evidence from developing countries. American Journal of Agricultural Economics, 86(3), 795–801. https://doi.org/10.1111/j.0002-9092.2004.00627.x
- Mazenda, A. (2014). The effect of foreign direct investment on economic growth: Evidence from South Africa. Mediterranean Journal of Social Sciences, 5(10), 95. https://doi.org/10.5901/mjss.2014.v5n10p95
- Nguyen, M.-L. T., & Bui, T. N. (2021). Trade openness and economic growth: A Study on Asean-6. Economies, 9(3), 1–15. https://doi.org/10.3390/economies9030113
- Odhiambo, N. M. (2022). Foreign direct investment and economic growth in Kenya: An empirical investigation. International Journal of Public Administration, 45(8), 620–631. https://doi.org/10.1080/01900692.2021.1872622
- Papke, L. E., & Wooldridge, J. M. (2005). A computational trick for delta-method standard errors. Economics Letters, 86(3), 413–417. https://doi.org/10.1016/j.econlet.2004.07.022
- Pesaran, M. H. (2004). General diagnostic tests for cross-section dependence in panels (CESifo Working Paper No. 1229).
- Petreski, M. (2009). Exchange-rate regime and economic growth: A review of the theoretical and empirical literature (Economics Discussion Papers No. 2009–31).
- Polat, A., Shahbaz, M., Rehman, I. U., & Satti, S. L. (2015). Revisiting linkages between financial development, trade openness and economic growth in South Africa: Fresh evidence from combined cointegration test. Quality & Quantity, 49(2), 785–803. https://doi.org/10.1007/s11135-014-0023-x
- Ridzuan, A. R., Ismail, N. A., & Hamat, A. F. C. (2018). Foreign direct investment and trade openness: Do they lead to sustainable development in Malaysia? Journal of Sustainability Science and Management, 4, 79–97.
- Roodman, D. (2009). How to do xtabond2: An introduction to difference and system GMM in Stata. Stata Journal, 9(1), 86–136. https://doi.org/10.1177/1536867x0900900106
- Sachs, J. D., & Warner, A. M. (1995). Natural resource abundance and economic growth (NBER Working Paper Series No. 5398) (Vol. 3). Massachusetts. https://doi.org/10.3386/w5398
- Tadmon, C., & Njike Tchaptchet, E. R. (2022a). Financial crisis spread, economic growth and unemployment: A mathematical model. Studies in Nonlinear Dynamics & Econometrics, Ahead of P. https://doi.org/10.1515/snde-2021-0081
- Tadmon, C., & Njike Tchaptchet, E. R. (2022b). Impact of financial crisis on economic growth: A stochastic model. Stochastics and Quality Control, 37(1), 45–63. https://doi.org/10.1515/eqc-2021-0049
- Thangavelu, S. M., Wei Yong, Y., & Chongvilaivan, A. (2009). FDI, growth and the Asian financial crisis: The experience of selected Asian countries. The World Economy, 32(10), 1461–1477. https://doi.org/https://doi.org/10.1111/j.1467-9701.2009.01202.x
- Zhang, K. (2003). Foreign direct investment in China: 1978-2002. Asian Economic and Political Issues, 8(1), 1–18.
References
Acharyya, J. (2009). FDI, growth and the environment: Evidence from India on CO2 emission during the last two decades. Journal of Economic Development, 34(1), 43–58. https://doi.org/10.35866/caujed.2009.34.1.003
Afonso, A., & Blanco-Arana, M. C. (2022). Financial and economic development in the context of the global 2008-09 financial crisis. International Economics, 169, 30–42. https://doi.org/10.1016/j.inteco.2021.11.006
Ahmed, E. M. (2012). Are the FDI inflow spillover effects on Malaysia’s economic growth input driven? Economic Modelling, 29(4), 1498–1504. https://doi.org/10.1016/j.econmod.2012.04.010
Alfaro, L., Chanda, A., Kalemli-Ozcan, S., & Sayek, S. (2010). Does foreign direct investment promote growth? Exploring the role of financial markets on linkages. Journal of Development Economics, 91(2), 242–256. https://doi.org/10.1016/j.jdeveco.2009.09.004
Arabiyat, T. S., Mdanat, M., & Samawi, G. (2020). Trade openness, inclusive growth, and inequality: Evidence from Jordan. The Journal of Developing Areas, 54(1). https://doi.org/10.1353/jda.2020.0008
Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economic Studies, 58(2), 277–297. https://doi.org/10.2307/2297968
Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error components models. Journal of Econometrics, 68(1), 29–51. https://doi.org/10.1016/0304-4076(94)01642-D
Armeanu, D., Vintilă, G., Andrei, J. V., Gherghina, Ş. C., Drăgoi, M. C., & Teodor, C. (2018). Exploring the link between environmental pollution and economic growth in EU-28 countries: Is there an environmental Kuznets curve? PLOS ONE, 13(5), 1–28. https://doi.org/10.1371/journal.pone.0195708
Baharumshah, A. Z., & Almasaied, S. W. (2009). Foreign direct investment and economic growth in Malaysia: Interactions with human capital and financial deepening. Emerging Markets Finance and Trade, 45(1), 90–102. https://doi.org/10.2753/REE1540-496X450106
Carvalho, T. P., Soares, F. A. A. M. N., Vita, R., da P. Francisco, R., Basto, J. P., & Alcalá, S. G. S. (2019). A systematic literature review of machine learning methods applied to predictive maintenance. Computers & Industrial Engineering, 137, 106024. https://doi.org/10.1016/j.cie.2019.106024
Chaudhury, S., Nanda, N., & Tyagi, B. (2020). Impact of FDI on economic growth in South Asia: Does nature of FDI Mmatters? Review of Market Integration, 12(1–2), 51–69. https://doi.org/10.1177/0974929220969679
Chen, S., Zhang, H., & Wang, S. (2022). Trade openness, economic growth, and energy intensity in China. Technological Forecasting and Social Change, 179, 121608. https://doi.org/10.1016/j.techfore.2022.121608
Dumitrescu, E.-I., & Hurlin, C. (2012). Testing for Granger non-causality in heterogeneous panels. Economic Modelling, 29(4), 1450–1460. https://doi.org/10.1016/j.econmod.2012.02.014
Fayissa, B., & Nsiah, C. (2010). The impact of remittances on economic growth and development in Africa. The American Economist, 55(2), 92–103. https://doi.org/10.1177/056943451005500210
Frankel, J. A., & Romer, D. H. (1999). Does trade cause growth? American Economic Review, 89(3), 379–399. https://doi.org/10.1257/aer.89.3.379
Ghosh Roy, A., & den Berg, H. F. (2006). Foreign direct investment and economic growth: A time-series approach. Global Economy Journal, 6(1), 1850084. https://doi.org/10.2202/1524-5861.1130
Jalles, J. T. (2012). Openness, regional trade agreements and growth: Evidence from Asia. Asian Economic Journal, 26(1), 63–85. https://doi.org/10.1111/j.1467-8381.2011.02073.x
Kizilkaya, O., Ahmet, A., & Akar, G. (2016). Dynamic relationship among foreign direct investments, human capital, economic freedom and economic growth: Evidence from panel cointegration and panel causality analysis. Theoretical and Applied Economics, 23(3), 127–140.
Kotrajaras, P. (2013). Foreign direct investment and economic growth: A comparative study among East Asian countries. Applied Economics Journal, 17(2), 12–26.
Li, F., & Zhang, S. (2022). Does financial crisis change the relationship between bank development and economic growth? Evidence from US states. PLOS ONE, 17(4), 1–19. https://doi.org/10.1371/journal.pone.0267394
Lyroudi, K., Papanastasiou, J., & Vamvakidis, A. (2004). Foreign direct investment and economic growth in transition economies. South-Eastern Europe Journal of Economics, 2(1), 97–110.
Makki, S. S., & Somwaru, A. (2004). Impact of foreign direct investment and trade on economic growth: Evidence from developing countries. American Journal of Agricultural Economics, 86(3), 795–801. https://doi.org/10.1111/j.0002-9092.2004.00627.x
Mazenda, A. (2014). The effect of foreign direct investment on economic growth: Evidence from South Africa. Mediterranean Journal of Social Sciences, 5(10), 95. https://doi.org/10.5901/mjss.2014.v5n10p95
Nguyen, M.-L. T., & Bui, T. N. (2021). Trade openness and economic growth: A Study on Asean-6. Economies, 9(3), 1–15. https://doi.org/10.3390/economies9030113
Odhiambo, N. M. (2022). Foreign direct investment and economic growth in Kenya: An empirical investigation. International Journal of Public Administration, 45(8), 620–631. https://doi.org/10.1080/01900692.2021.1872622
Papke, L. E., & Wooldridge, J. M. (2005). A computational trick for delta-method standard errors. Economics Letters, 86(3), 413–417. https://doi.org/10.1016/j.econlet.2004.07.022
Pesaran, M. H. (2004). General diagnostic tests for cross-section dependence in panels (CESifo Working Paper No. 1229).
Petreski, M. (2009). Exchange-rate regime and economic growth: A review of the theoretical and empirical literature (Economics Discussion Papers No. 2009–31).
Polat, A., Shahbaz, M., Rehman, I. U., & Satti, S. L. (2015). Revisiting linkages between financial development, trade openness and economic growth in South Africa: Fresh evidence from combined cointegration test. Quality & Quantity, 49(2), 785–803. https://doi.org/10.1007/s11135-014-0023-x
Ridzuan, A. R., Ismail, N. A., & Hamat, A. F. C. (2018). Foreign direct investment and trade openness: Do they lead to sustainable development in Malaysia? Journal of Sustainability Science and Management, 4, 79–97.
Roodman, D. (2009). How to do xtabond2: An introduction to difference and system GMM in Stata. Stata Journal, 9(1), 86–136. https://doi.org/10.1177/1536867x0900900106
Sachs, J. D., & Warner, A. M. (1995). Natural resource abundance and economic growth (NBER Working Paper Series No. 5398) (Vol. 3). Massachusetts. https://doi.org/10.3386/w5398
Tadmon, C., & Njike Tchaptchet, E. R. (2022a). Financial crisis spread, economic growth and unemployment: A mathematical model. Studies in Nonlinear Dynamics & Econometrics, Ahead of P. https://doi.org/10.1515/snde-2021-0081
Tadmon, C., & Njike Tchaptchet, E. R. (2022b). Impact of financial crisis on economic growth: A stochastic model. Stochastics and Quality Control, 37(1), 45–63. https://doi.org/10.1515/eqc-2021-0049
Thangavelu, S. M., Wei Yong, Y., & Chongvilaivan, A. (2009). FDI, growth and the Asian financial crisis: The experience of selected Asian countries. The World Economy, 32(10), 1461–1477. https://doi.org/https://doi.org/10.1111/j.1467-9701.2009.01202.x
Zhang, K. (2003). Foreign direct investment in China: 1978-2002. Asian Economic and Political Issues, 8(1), 1–18.