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Showing 14 results for Foreign Direct Investment
Volume 8, Issue 4 (1-2009)
Abstract
Based on the early theories of the foreign direct investment (FDI), trade and FDI are substitutes while the new international trade theories emphasize the complementary relationship between trade and FDI. This introduces new aspects to model fundamental concepts such as increasing returns to scale, product differentiation, and technology differences among countries. This paper is an empirical study of the interaction between trade and FDI using data on inward FDI to the ECO and D8 countries. To end this, we use instrumental variable and generalized two-stage least squares (G2SLS) techniques for panel data models. The results show that there is a complementary relationship between trade and FDI. Moreover, GDP, exchange rate, population, inflation, and some convergences variables have significantly influence on trade and FDI.
Kamaleddin Sheikholeslami Salmasi, Hamid Etemad,
Volume 11, Issue 3 (7-2004)
Volume 11, Issue 3 (7-2004)
Abstract
Mining and metallurgical projects are among those that require the most sizeable invest-ments undertaken in Iran. One target of the current development plan and the Ministry of Mines and Industries has been to attract foreign investment in mining projects. A survey of world-class mining companies was conducted to determine their expectations and in order to recommend a frame work for Iran aimed at attracting foreign investment This paper exam-ines and reports on the important factors and issues influencing major mining companies’ decision to invest in the mineral sector of Iran, and other developing countries, by extension.
Volume 14, Issue 4 (1-2015)
Abstract
Political instability as one the domestic factors has the nearest interaction with the concept of economic security in influencing on production factors. In developing countries, uncertainty is created in an unstable political environment and violent behavior atmosphere. It results in reduction in the investment levels, failure in attracting foreign capital, and capital flight. Terrorism is one of the important political risk indicators. This study examines the effect of terrorism on inward foreign direct investment (FDI) in the Middle East region. The statistical sample includes Iran, Bahrain, Egypt, Kuwait, Saudi Arabia, Syria, Jordan, and Turkey over the period 1970-2008. Using panel data method, findings show that Terrorism has negative impact on FDI in selected countries. Adversely, GDP and Openness degree have positive impact on FDI.
Volume 19, Issue 2 (6-2019)
Abstract
Due to the importance of limited energy resources in the world, researchers and policy makers pay more attention to energy intensity. The purpose of the paper is to study the effect of structural break on factors influencing energy intensity in Iran during the period of 1979-2013. The Fully Modified Ordinary Least Squares (FMOLS) method was used to estimate co-integrating relationships among variables under study. The results showed that energy price and foreign direct investment had negative effects, and share of industrial value added had a significant positive effect on energy intensity. Then structural break was included in the model as a dummy variable. Findings indicate that 1987’s structural break has reduced the impact of energy price and industrial value added, which points to a decrease in the price elasticity of energy intensity and an increase in productivity of the industrial sector after structural break. However, such break had no significant effect on the relationship between direct foreign investment and energy intensity.
Volume 20, Issue 1 (3-2020)
Abstract
Foreign capital inflows (FCIs) are considered as catalysts for economic development and important sources of transferring technology and foreign exchange earnings from developed to developing countries. FCIs include foreign direct investment (FDI), personal remittances (PRs) and official development aids (ODAs), which contribute to economic development. This paper aims to estimate the effects of FCIs on economic growth in Iran by using an endogenous growth model and applying Autoregressive Distributed Lags (ARDL) approach over the period 1992-2016. The results of the study indicate that all three kinds of foreign capital inflows have positive and significant impacts on economic growth in the long- and short-run. However, FDI and PRs are more effective than ODAs on economic growth in Iran. The study suggests that sound fiscal, monetary and trade policies lead to full effectiveness of the foreign capital inflows on economic growth.
Volume 20, Issue 2 (6-2020)
Abstract
The purpose of this paper is to estimate the direct effect of foreign investment on economic growth in agriculture, industry and services sectors in the provinces of Iran during the period 2001-2017. For this purpose, the Panel Smooth Transition Regression (PSTR) model used. It was found that there is a nonlinear relationship between foreign direct investment and the growth of various economic sectors. The results of this study indicate that foreign direct investment affects differently the growth of various economic sectors due to fluctuations in inflation rates. The estimated coefficients for the inflation rate threshold in three-menthioned sectors were 2.55, 1.78 and 1.94, respectively. In addition, one-percent increase in foreign direct investment would increase the growth rates of agriculture, industry, and service sectors by 0.50%, 0.69% and 0.88%, respectively.
Volume 20, Issue 4 (12-2020)
Abstract
Due to the fundamental differences in technology, factor abundance, labor productivity and economic capacities, developing countries need to attract FDI in order to achieve sustainable development goals. FDI transfers a variety of spillover effects including advanced technology, modern management and productive capital which properly help saving and promoting the environment. Indeed, FDI develops economic potentials of developing countries to expand export markets and to participate in the global economy, a fact that quantitative values lead to qualitative ones. Now, the question arises whether attracting any kind of FDI by emerging and developing economies leads to high-value employment opportunities, or preserves the environment. Do sustainable FDI flows secure sustainable development goals in developing countries? The basic hypothesis of this study is based on assessing the validity of this claim, subject to being empirically tested. This study investigates the effect of FDI on the sustainable development process in selected developing economies by using a panel data model over the period 2000-2018. The results indicate the significant effect of FDI and its spillover on sustainable development of selected countries. However, environmental pollution has statistically a negative and significant effect on sustainable development in these countries. The negative interaction effect of FDI and carbon dioxide emission on sustainable development indicates that if FDI triggers environmental pollution in host countries, it will hinders the path to sustainable development.
Jafar Ghasemi Varnamkhasti, Nader Mehregan,
Volume 21, Issue 3 (7-2014)
Volume 21, Issue 3 (7-2014)
Abstract
This paper investigates the key factors affecting the foreign direct investment (FDI) inflow to developing countries during the period (1995-2010) with emphasis on the financial development. Financial development, as an important factor in FDI absorption and a prerequisite for utilizing the benefits of FDI, not only increases the FDI inflow in developing countries, but also improve the absorption capacity and ability of these countries to utilize the benefits of FDI. Since the financial system consists of several components and provides a variety of services, various indicators, which represent the development of different aspects and components of financial system, have been applied in order to assess the impact of financial development on the FDI. Results indicate that development of various components of financial system (stock market and banking sector) as well as different aspects of financial development (size and activity level of financial system) all have positive and significant impact on the FDI inflow in developing countries during the studied period.
Volume 21, Issue 3 (9-2021)
Abstract
The purpose of this research is to study the effects of democracy and corruption on attracting foreign direct investment in West and East Asia. To do this, a dynamic panel model and generalized method of moments are employed over the period 2009-2018. The results of the estimates for the 13 countries of the West Asia Group indicate a positive and significant relationship between the democracy and foreign direct investment and the existence of a significant negative correlation between corruption and the consumer price index with the foreign direct investment. Also, in this group of countries, the effects of the degree of trade openness, democracy and real exchange rate on foreign direct investment were positive and significant and the effects of corruption and consumer price index were negative and significant. Besides, according to the results of this method for 15 East Asian countries, the corruption and consumer price index had negative and significant effects, and the democracy, corruption, trade openness, economic growth and real exchange rate had positive and significant impacts on foreign direct investment. Therefore, regarding the effect of democracy on attracting foreign direct investment, Jensen's theory was approved in both groups of countries, but regarding the effect of corruption on FDI, in East Asia the theory of helping hand of corruption and in West Asia the theory of destructive hand or the corruption was confirmed. According to the results, the impact of these variables on foreign direct investment in the East Asian group was greater than the West Asian group.
Volume 21, Issue 151 (8-2024)
Abstract
Considering the significance of food security in the planning of developing nations, such as Iran, and the crucial role played by the private sector in food investment, this study explores the influence of technology spillovers on private sector investment in Iran's agricultural food industry over a 30-year period. Using the dynamic computable general equilibrium (DCGE) model and the 2010 social accounting matrix, the study evaluates the effects of technology spillovers in three scenarios: doubling foreign direct investment, enhancing research and development to improve production efficiency (with a technology deduction coefficient of 0.0062), and increasing capital and intermediary goods imports by 20%. The impact of these scenarios on private institutional investment in the agricultural food industry, encompassing agriculture and horticulture, livestock, fisheries, and food industries, is assessed. The results indicate that the first scenario leads to increased private sector investment in all four sectors mentioned. The second scenario does not increase private sector investment in these sectors, while the third scenario only affects investment in the fisheries sector, without impacting the other sectors of the agricultural food industry.
Jafar Qasimi Varnamkhasti, Nadir Mihrigan, Riza Najjarzadi, Ebrahim Hosseini-Nasab,
Volume 22, Issue 3 (7-2015)
Volume 22, Issue 3 (7-2015)
Abstract
This paper investigates the key factors affecting the foreign direct investment (FDI) inflow to developing countries during the period (1995-2010) with emphasis on the financial development. Financial development, as an important factor in FDI absorption and a prerequisite for utilizing the benefits of FDI, not only increases the FDI inflow in developing countries, but also improve the absorption capacity and ability of these countries to utilize the benefits of FDI. Since the financial system consists of several components and provides a variety of services, various indicators, which represent the development of different aspects and components of financial system, have been applied in order to assess the impact of financial development on the FDI. Results indicate that development of various components of financial system (stock market and banking sector) as well as different aspects of financial development (size and activity level of financial system) all have positive and significant impact on the FDI inflow in developing countries during the studied period.
Volume 23, Issue 2 (5-2023)
Abstract
Introduction:
Tourism is a socio-economic phenomenon that begins with an economic decision about using leisure time and savings and has economic aspects such as investment, consumption, employment, export, and government income. Currently, tourism is one of the factors that providing income in the global economy and is becoming an essential factor for the investments and development of countries. The development of this industry is very important in developing countries, such as Iran, which are facing problems such as unemployment, lack of foreign exchange resources, and a single-product economy. Tourism is closely related to foreign direct investment, because tourism development has an urgent need for foreign direct investment in the tourism sector. Internationalization is a phenomenon that links tourism to foreign direct investment. Foreign direct investment helps in the financing, technology transfer, infrastructure development, job creation, and economic growth. Along with several benefits that foreign direct investment brings to the host country, it also plays a prominent role in developing the tourism industry. Also, the tourism industry, like many other industries, is disturbed by the fluctuations of the currency market. This disturbance in the tourism market is much more visible than in other industries, because the tourism industry is directly related to exchange rate changes. Considering that the development of the tourism industry is very important for developing countries like Iran, which are facing problems such as high unemployment rate, limited foreign exchange resources, and single product economy, the main purpose of this research is to investigate the asymmetric effect of foreign direct investment and exchange rate on Tourism in Iran.
Methodology:
The research model in this study to investigate the asymmetric effects of foreign direct investment on tourism is taken from the study of Munir and Iftikhar (2021) as follows, in addition, since the sanction is one of the influencing factors on Iran's economy in different periods and consequently on is the number of incoming tourists to Iran, so in this study, the sanction variable has been added to the study model as an important variable.
Tourism is a socio-economic phenomenon that begins with an economic decision about using leisure time and savings and has economic aspects such as investment, consumption, employment, export, and government income. Currently, tourism is one of the factors that providing income in the global economy and is becoming an essential factor for the investments and development of countries. The development of this industry is very important in developing countries, such as Iran, which are facing problems such as unemployment, lack of foreign exchange resources, and a single-product economy. Tourism is closely related to foreign direct investment, because tourism development has an urgent need for foreign direct investment in the tourism sector. Internationalization is a phenomenon that links tourism to foreign direct investment. Foreign direct investment helps in the financing, technology transfer, infrastructure development, job creation, and economic growth. Along with several benefits that foreign direct investment brings to the host country, it also plays a prominent role in developing the tourism industry. Also, the tourism industry, like many other industries, is disturbed by the fluctuations of the currency market. This disturbance in the tourism market is much more visible than in other industries, because the tourism industry is directly related to exchange rate changes. Considering that the development of the tourism industry is very important for developing countries like Iran, which are facing problems such as high unemployment rate, limited foreign exchange resources, and single product economy, the main purpose of this research is to investigate the asymmetric effect of foreign direct investment and exchange rate on Tourism in Iran.
Methodology:
The research model in this study to investigate the asymmetric effects of foreign direct investment on tourism is taken from the study of Munir and Iftikhar (2021) as follows, in addition, since the sanction is one of the influencing factors on Iran's economy in different periods and consequently on is the number of incoming tourists to Iran, so in this study, the sanction variable has been added to the study model as an important variable.
Where, TR (number of incoming tourists), FDI (foreign direct investment), ER (real exchange rate), INF (inflation rate), and SAN (sanction index). In the model estimation process, the data of this research was extracted from the sources of the World Bank and the International Monetary Fund on an annual basis during the period of 1981-2019, the data related to the sanctions index was taken from the study of Iranmanesh et al. (1400). In this study, the sanctions index was obtained through interviews with 15 experts in the economy of sanctions in the form of fuzzy questionnaires and fuzzy logic method. In addition, the Nonlinear Autoregressive Distributed Lag method (NARDL) is also used to estimate the above model.
Results and Discussion:
In this study, before performing the cointegration test, the degree of integration of the variables was determined by using two unit root tests of Augmented Dickey-Fuller and Zivot-Andrews. The results of the unit root test showed that in the Dickey-Fuller test, all model variables, except the inflation rate, are integrated into the first order. Also, in the Zivot-Andrews test, the variables of foreign direct investment and the inflation rate are integrated in zero order, and the rest are integrated in one order. After performing the unit root test, the bounds cointegration test was performed to check the existence of long-term relationships between the variables, the results of this test showed that there is a long-term relationship between the variables. After ensuring the existence of a long-term relationship between the variables, Wald's test was used to perform the short-term and long-term asymmetry tests. The results of this test showed that the effect of the foreign direct investment variable on the tourism variable is asymmetric in the short and long term. By identifying the existence of a long-term relationship and confirming the asymmetric effect of foreign direct investment on tourism in the short and long term, the final estimation of the NARDL model was carried out. The estimation results of the model show the asymmetric effect of foreign direct investment in the short and long term on tourism. So that in the short and long term, the effect of positive and negative changes in the foreign direct investment variable on tourism has been positive and significant. Also, the results showed that the effect of the exchange rate on tourism in the short and long term is positive and significant. Finally, to ensure the stability of the model, CUSUM and CUSUMSQ tests were performed. The results indicate that the estimated model is stable.
Conclusion:
According to the results of the model estimation:
1-Considering the positive impact of foreign direct investment on the number of incoming tourists to Iran, it is recommended that policymakers try to strengthen relations with other countries in the first step. Also, by adopting the right policies to strengthen the infrastructure, facilitate the issuance of permits and generally provide a suitable platform and a safe environment to encourage investors and foreign countries to invest in the country, provide the ground for the arrival of more tourists from all over the world.
2- Considering the positive effect of the exchange rate on the balance of payments of tourism, policymakers and, economic planners are suggested to increase the exchange rate by short shocks. But an increase in the exchange rate can cause domestic inflation, mistrust of domestic money and create rental income for profit-seeking people. Considering the negative effect of the inflation rate on the demand function of international tourism for travel to Iran, policymakers and economic planners should try to control the inflation rate in the country by adopting appropriate monetary and financial policies so that they can reduce its negative effect on the number of tourists.
3- The negative effect of sanctions on the number of tourists arriving in Iran indicates the fact that the application of diverse and extensive economic sanctions by the United States of America, the European Union and the United Nations Security Council against Iran has had a significant negative effect on attracting foreign tourists to Iran. It is recommended that in the first step, policymakers and officials take practical measures by conducting effective negotiations to reduce sanctions and at the same time, make decisions so that they can reduce the negative impact of sanctions in the field of attracting foreign tourists.
Results and Discussion:
In this study, before performing the cointegration test, the degree of integration of the variables was determined by using two unit root tests of Augmented Dickey-Fuller and Zivot-Andrews. The results of the unit root test showed that in the Dickey-Fuller test, all model variables, except the inflation rate, are integrated into the first order. Also, in the Zivot-Andrews test, the variables of foreign direct investment and the inflation rate are integrated in zero order, and the rest are integrated in one order. After performing the unit root test, the bounds cointegration test was performed to check the existence of long-term relationships between the variables, the results of this test showed that there is a long-term relationship between the variables. After ensuring the existence of a long-term relationship between the variables, Wald's test was used to perform the short-term and long-term asymmetry tests. The results of this test showed that the effect of the foreign direct investment variable on the tourism variable is asymmetric in the short and long term. By identifying the existence of a long-term relationship and confirming the asymmetric effect of foreign direct investment on tourism in the short and long term, the final estimation of the NARDL model was carried out. The estimation results of the model show the asymmetric effect of foreign direct investment in the short and long term on tourism. So that in the short and long term, the effect of positive and negative changes in the foreign direct investment variable on tourism has been positive and significant. Also, the results showed that the effect of the exchange rate on tourism in the short and long term is positive and significant. Finally, to ensure the stability of the model, CUSUM and CUSUMSQ tests were performed. The results indicate that the estimated model is stable.
Conclusion:
According to the results of the model estimation:
1-Considering the positive impact of foreign direct investment on the number of incoming tourists to Iran, it is recommended that policymakers try to strengthen relations with other countries in the first step. Also, by adopting the right policies to strengthen the infrastructure, facilitate the issuance of permits and generally provide a suitable platform and a safe environment to encourage investors and foreign countries to invest in the country, provide the ground for the arrival of more tourists from all over the world.
2- Considering the positive effect of the exchange rate on the balance of payments of tourism, policymakers and, economic planners are suggested to increase the exchange rate by short shocks. But an increase in the exchange rate can cause domestic inflation, mistrust of domestic money and create rental income for profit-seeking people. Considering the negative effect of the inflation rate on the demand function of international tourism for travel to Iran, policymakers and economic planners should try to control the inflation rate in the country by adopting appropriate monetary and financial policies so that they can reduce its negative effect on the number of tourists.
3- The negative effect of sanctions on the number of tourists arriving in Iran indicates the fact that the application of diverse and extensive economic sanctions by the United States of America, the European Union and the United Nations Security Council against Iran has had a significant negative effect on attracting foreign tourists to Iran. It is recommended that in the first step, policymakers and officials take practical measures by conducting effective negotiations to reduce sanctions and at the same time, make decisions so that they can reduce the negative impact of sanctions in the field of attracting foreign tourists.
Volume 24, Issue 4 (12-2024)
Abstract
Aim and Introduction
Today, with the expansion of globalization and increased economic competition, capital accumulation has been proposed as one of the main factors of the economic growth process of the countries, which can be provided through domestic or foreign sources. Meanwhile, inadequacy of internal resources and the need for high technical knowledge in some countries that seek economic growth have required a serious approach to this issue. Furthermore, countries with limited domestic resources are not able to expand exports and acquire shares from new markets, and they need stable resources to provide capital and their needs, among which attracting foreign capital is one of the economic solutions. Indirect foreign investment includes investments made by foreign natural and legal entities in the form of buying securities of a financial institution and company and providing them to the host country during a process. Due to the important role of foreign direct investment, the global market for attracting these funds has become really competitive. Such competition has been formed especially among developing countries due lack of financial resources on the one hand, and the need for achieving rapid development on the other. Therefore, it is crucilaly important to identify the factors affecting the flow of foreign direct investment. As a result, the aim of the present study is to investigate the relationship between foreign investment and crimes committed in 31 provinces of the country during 2001-2021 using panel data regression models and unit root stationarity tests of Levin, Lin and Chu, Im, Pesaran and Shin, Fisher and Fisher.
Methodology
According to the theoretical foundations of foreign direct investment and crime and the study conducted by Daniele and Marani in 2008, regression model (panel data) and static test have been considered to investigate the relationship between foreign direct investment and crime. In other words, in the estimation of regression models in the form of time series, it is critically important to check the stationarity of the variables, and for this purpose, Levin, Lin and Chu, Im, Pesaran and Shin, Fisher and Fisher tests were used in this study. The variables investigated in this study include foreign direct investment as a dependent variable and population variables, GDP per capita, industry index, degree of openness of the regional economy, infrastructure index and crime variable as an independent variable.
Findings
The results indicate that the test of the first model shows a negative relationship between foreign direct investment and crime, which is not statistically significant. In other words, with the increase in crime, the power to attract foreign direct investment in each province decreases. The results of the second model indicate that the logarithm of GDP per capita has a negative and significant effect on the entry of foreign direct investment. In other words, with the increase of GDP in each province, the amount of foreign direct investment attraction decreases. In the third model, in addition to the gross domestic product, the logarithm of the investment of exploitation licenses issued in each province as an industry index of each province has been entered into the model, which has a negative and significant effect on foreign direct investment. In the fourth model, the variable related to the country's infrastructure, which in this study is the amount of electricity subscribers of each province, has a positive and significant effect, and by entering the infrastructure variable, the effect of other variables is the same as before. The variable of the degree of openness of the economy in the fifth model shows a positive and significant effect on foreign direct investment, and it shows that the more suitable the country has for trade with other countries, the more the desire to invest in the country increases and the more foreign direct investment is attracted. GDP per capita variables and industry index have a negative and significant effect, and the infrastructure variable also has a positive and significant effect on foreign direct investment. In final model where the population variable is entered, the results indicate a negative and significant effect of the population on foreign direct investment. In other words, with the increase in population, the power to attract direct investment in each province decreases.
Discussion and Conclusion
The results obtained from the present study indicate that although, based on the data examined in this study, crimes have not had a significant effect on the attraction of foreign direct investment, but the negative effects of GDP per capita and the industry index indicate that despite Iran's capabilities, it requires official and long-term planning to provide the necessary ground for attracting foreign direct investments. It seems that a step can be taken in this direction by applying the reduction of restrictions in the field of commercial policies, especially the foundation through tariff and customs policies and application of protective laws and regulations
Today, with the expansion of globalization and increased economic competition, capital accumulation has been proposed as one of the main factors of the economic growth process of the countries, which can be provided through domestic or foreign sources. Meanwhile, inadequacy of internal resources and the need for high technical knowledge in some countries that seek economic growth have required a serious approach to this issue. Furthermore, countries with limited domestic resources are not able to expand exports and acquire shares from new markets, and they need stable resources to provide capital and their needs, among which attracting foreign capital is one of the economic solutions. Indirect foreign investment includes investments made by foreign natural and legal entities in the form of buying securities of a financial institution and company and providing them to the host country during a process. Due to the important role of foreign direct investment, the global market for attracting these funds has become really competitive. Such competition has been formed especially among developing countries due lack of financial resources on the one hand, and the need for achieving rapid development on the other. Therefore, it is crucilaly important to identify the factors affecting the flow of foreign direct investment. As a result, the aim of the present study is to investigate the relationship between foreign investment and crimes committed in 31 provinces of the country during 2001-2021 using panel data regression models and unit root stationarity tests of Levin, Lin and Chu, Im, Pesaran and Shin, Fisher and Fisher.
Methodology
According to the theoretical foundations of foreign direct investment and crime and the study conducted by Daniele and Marani in 2008, regression model (panel data) and static test have been considered to investigate the relationship between foreign direct investment and crime. In other words, in the estimation of regression models in the form of time series, it is critically important to check the stationarity of the variables, and for this purpose, Levin, Lin and Chu, Im, Pesaran and Shin, Fisher and Fisher tests were used in this study. The variables investigated in this study include foreign direct investment as a dependent variable and population variables, GDP per capita, industry index, degree of openness of the regional economy, infrastructure index and crime variable as an independent variable.
Findings
The results indicate that the test of the first model shows a negative relationship between foreign direct investment and crime, which is not statistically significant. In other words, with the increase in crime, the power to attract foreign direct investment in each province decreases. The results of the second model indicate that the logarithm of GDP per capita has a negative and significant effect on the entry of foreign direct investment. In other words, with the increase of GDP in each province, the amount of foreign direct investment attraction decreases. In the third model, in addition to the gross domestic product, the logarithm of the investment of exploitation licenses issued in each province as an industry index of each province has been entered into the model, which has a negative and significant effect on foreign direct investment. In the fourth model, the variable related to the country's infrastructure, which in this study is the amount of electricity subscribers of each province, has a positive and significant effect, and by entering the infrastructure variable, the effect of other variables is the same as before. The variable of the degree of openness of the economy in the fifth model shows a positive and significant effect on foreign direct investment, and it shows that the more suitable the country has for trade with other countries, the more the desire to invest in the country increases and the more foreign direct investment is attracted. GDP per capita variables and industry index have a negative and significant effect, and the infrastructure variable also has a positive and significant effect on foreign direct investment. In final model where the population variable is entered, the results indicate a negative and significant effect of the population on foreign direct investment. In other words, with the increase in population, the power to attract direct investment in each province decreases.
Discussion and Conclusion
The results obtained from the present study indicate that although, based on the data examined in this study, crimes have not had a significant effect on the attraction of foreign direct investment, but the negative effects of GDP per capita and the industry index indicate that despite Iran's capabilities, it requires official and long-term planning to provide the necessary ground for attracting foreign direct investments. It seems that a step can be taken in this direction by applying the reduction of restrictions in the field of commercial policies, especially the foundation through tariff and customs policies and application of protective laws and regulations
Volume 25, Issue 1 (3-2025)
Abstract
Aim and Introduction
Inclusive growth strategy is a new concept in the field of growth and development in the economy, which is used by policymakers in a special way. In various political discourses, inclusive growth is a result of basic meanings such as large and fair growth, economic growth in alinmment with the development of human growth, pro-poor, accessible and participatory growth, sustainable growth from an economic and environmental perspective, and many private concepts. On the other hand, foreign direct investment (FDI) can be considered as a means of financing countries, which is one of the best tools for economic development.
Considering its contribution and long-term implication, it is a narrow approach to lemmatize the role of FDI in promoting economic growth only. The new developments in growth literature take poverty and inequality also in the account. Hence, the paper links FDI with a broader term, Inclusive Growth. Inclusive growth is a growth process that includes every segment of society. It creates and distributes opportunities in an equitable manner and utilizes a major part of the labour force. It also moves them out of poverty and enhances productive employment. The evidence from a long list of literature, consulted for this research suggest that the resulted effect of FDI on inclusive growth is highly defined by the host economy’s own institutional quality.
Methodology
In literature, inclusive growth is defined as the maximization of the social opportunity function. As it undertakes the spectrum of efficiency and equity under one umbrella. The concept of social opportunity function itself was derived from the idea of generalized concentration curve introduced initially by (Ali & Son, 2007) in inclusive growth literature. This concept of generalized concentration curve was later used to form social opportunity index by calculating the area under the curve (Anand, Mishra, and Peiris, 2013).
Considering the fact that opportunity can take any forms such as health care, education or several other monetary and non-monetary opportunities. The study will use income as a determinant of opportunity. As it is the most common and widely used measure of determining individuals’ access to certain other kinds of opportunities.
The aim of the present study is to analyze the effect of attracting foreign direct investment on inclusive growth in the Shanghai Cooperation members during the period of 2000-2022. Therefore, in order to calculate the inclusive growth index, to introduce the study model of this research and examine it the panel data method has been used. For estimating the model, threshold panel in Stata software has also been applied, to analyze the effect of foreign direct investment attraction on inclusive growth.
Results and Discussion
The results presented in this paper are fixed effect robust estimates, which automatically addresses any underlying existence of heteroscedasticity. Hausman specification test has been used to select between the two widely used panel estimation techniques, fixed and random effect estimation. Result for the overall sample of world economies shows a significant positive effect of FDI on inclusive growth and GDP. The estimation of the model was based on the fixed effects method in the stata software, and the results of the estimation of the model show that except for the exchange rate variable, the rest of the model variables have a significant effect on inclusive growth. The threshold limit for the foreign direct investment attraction variable is 4.875 billion dollars, based on which the Gini coefficient variable above and below this threshold limit will have different effects on inclusive growth. When the attraction of foreign direct investment is lower than this threshold, the Gini coefficient has a significant effect on the inclusive growth variable in the countries under study. In other words, with one unit increase in the Gini coefficient, it causes a decrease of 0.005 units in the inclusive growth index. This issue is in line with the view of dependency advocates.
The second key variable, institutional quality, has shown a significant effect on overall economic growth. The results show that a good and developed financial system may increase the available volume of financing investment. Supervision of investment projects that reduces the cost of obtaining information and increases productivity during projects and accelerates economic growth.
Conclusion
The purpose of the study was to investigate the proposition that, foreign direct investment can be used as a financing tool for growth inclusiveness. The study calculated and used the inclusive growth variable following the methodology of social welfare function which is also known as the social opportunity function.
The study reached to following conclusions:
Foreign direct investment can be used as a financing tool for inclusive growth. A deep underpinning of its impact on inclusive growth variable suggested that the impact of FDI on increasing the overall income is positive and significant. Yet it does not significantly influence the distribution of the opportunities. Hence, FDI does not influence inclusive growth through equity channel but by increasing the average opportunities.
The results of the research show that the Gini Coefficient Index, which is considered as a threshold change above and below the foreign investment attraction threshold, has a different effect on the overall growth index. When Foreign Direct Investment is less than the threshold, with a unit increase in the Gini Coefficient, leads to a worsening of the equitable distribution of income. As a result the index of inclusive growth, is in line with the views of the dependency theory. If Foreign Direct Investment is above the threshold, with one unit increase in the Gini Coefficient, which leads to a worsening of the equitable distribution of income, the index of inclusive growth increases, will be in line with the theory of modernization
Inclusive growth strategy is a new concept in the field of growth and development in the economy, which is used by policymakers in a special way. In various political discourses, inclusive growth is a result of basic meanings such as large and fair growth, economic growth in alinmment with the development of human growth, pro-poor, accessible and participatory growth, sustainable growth from an economic and environmental perspective, and many private concepts. On the other hand, foreign direct investment (FDI) can be considered as a means of financing countries, which is one of the best tools for economic development.
Considering its contribution and long-term implication, it is a narrow approach to lemmatize the role of FDI in promoting economic growth only. The new developments in growth literature take poverty and inequality also in the account. Hence, the paper links FDI with a broader term, Inclusive Growth. Inclusive growth is a growth process that includes every segment of society. It creates and distributes opportunities in an equitable manner and utilizes a major part of the labour force. It also moves them out of poverty and enhances productive employment. The evidence from a long list of literature, consulted for this research suggest that the resulted effect of FDI on inclusive growth is highly defined by the host economy’s own institutional quality.
Methodology
In literature, inclusive growth is defined as the maximization of the social opportunity function. As it undertakes the spectrum of efficiency and equity under one umbrella. The concept of social opportunity function itself was derived from the idea of generalized concentration curve introduced initially by (Ali & Son, 2007) in inclusive growth literature. This concept of generalized concentration curve was later used to form social opportunity index by calculating the area under the curve (Anand, Mishra, and Peiris, 2013).
Considering the fact that opportunity can take any forms such as health care, education or several other monetary and non-monetary opportunities. The study will use income as a determinant of opportunity. As it is the most common and widely used measure of determining individuals’ access to certain other kinds of opportunities.
The aim of the present study is to analyze the effect of attracting foreign direct investment on inclusive growth in the Shanghai Cooperation members during the period of 2000-2022. Therefore, in order to calculate the inclusive growth index, to introduce the study model of this research and examine it the panel data method has been used. For estimating the model, threshold panel in Stata software has also been applied, to analyze the effect of foreign direct investment attraction on inclusive growth.
Results and Discussion
The results presented in this paper are fixed effect robust estimates, which automatically addresses any underlying existence of heteroscedasticity. Hausman specification test has been used to select between the two widely used panel estimation techniques, fixed and random effect estimation. Result for the overall sample of world economies shows a significant positive effect of FDI on inclusive growth and GDP. The estimation of the model was based on the fixed effects method in the stata software, and the results of the estimation of the model show that except for the exchange rate variable, the rest of the model variables have a significant effect on inclusive growth. The threshold limit for the foreign direct investment attraction variable is 4.875 billion dollars, based on which the Gini coefficient variable above and below this threshold limit will have different effects on inclusive growth. When the attraction of foreign direct investment is lower than this threshold, the Gini coefficient has a significant effect on the inclusive growth variable in the countries under study. In other words, with one unit increase in the Gini coefficient, it causes a decrease of 0.005 units in the inclusive growth index. This issue is in line with the view of dependency advocates.
The second key variable, institutional quality, has shown a significant effect on overall economic growth. The results show that a good and developed financial system may increase the available volume of financing investment. Supervision of investment projects that reduces the cost of obtaining information and increases productivity during projects and accelerates economic growth.
Conclusion
The purpose of the study was to investigate the proposition that, foreign direct investment can be used as a financing tool for growth inclusiveness. The study calculated and used the inclusive growth variable following the methodology of social welfare function which is also known as the social opportunity function.
The study reached to following conclusions:
Foreign direct investment can be used as a financing tool for inclusive growth. A deep underpinning of its impact on inclusive growth variable suggested that the impact of FDI on increasing the overall income is positive and significant. Yet it does not significantly influence the distribution of the opportunities. Hence, FDI does not influence inclusive growth through equity channel but by increasing the average opportunities.
The results of the research show that the Gini Coefficient Index, which is considered as a threshold change above and below the foreign investment attraction threshold, has a different effect on the overall growth index. When Foreign Direct Investment is less than the threshold, with a unit increase in the Gini Coefficient, leads to a worsening of the equitable distribution of income. As a result the index of inclusive growth, is in line with the views of the dependency theory. If Foreign Direct Investment is above the threshold, with one unit increase in the Gini Coefficient, which leads to a worsening of the equitable distribution of income, the index of inclusive growth increases, will be in line with the theory of modernization
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