Capital Inflows and Working Children in Developing Countries: An Empirical Approach

Multinational enterprises try to reduce operating costs and invest their capital in countries with low labor costs. However, although low labor cost is considered a determinant for foreign direct investment inflows, it is often associated with illegal activities, namely child labor. Motivated by the limited empirical evidence on the association between child labor and foreign direct investment inflows, the present research aims to investigate child labor in the European Union countries as a determinant of foreign direct investment inflows from 2002 to 2021 through a panel data analysis. The research contributes to the existing knowledge by extending an empirical model and providing empirical evidence for a group of developed countries. It is observed that the Foreign Direct investment inflows in the countries of the European Union are affected by socioeconomic conditions and institutional factors. Keywords: Child labor, Foreign Direct Investment, European Union, panel analysis.

This research extends Dunning’s investment development path theory to assess the long-run relationship among foreign direct investment (FDI) inflow, outflow and domestic investment (DI) for 32 emerging market economies (EMEs) based on 17 years data from 1996 to 2012. Breitung Panel unit root test has been used to identify the presence of unit root in the panel data. Since the FDI flows and domestic investments were found to be non-stationary at they were first differenced for converting to stationary variables. Based on Pedroni’s panel cointegration test a long-run relationship among DI, FDI inflow, and FDI outflow was observed indicating that the variables were integrated of order one. Further panel VECM was carried out to assess the causality and it was observed that a joint long-run causality was present both from FDI inflow and outflow towards DI. This essentially indicates that the FDI flows to EMEs will augment domestic capital formation. Therefore policy makers from the EMEs instead of focusing on standalone increase in FDI inflow should focus on both FDI inflow and outflow. However, in the short-run, DI was caused only by FDI inflow, and FDI outflow did not have any causal impact on DI. Further applying fully modified OLS (FMOLS) and dynamic OLS (DOLS) it was observed that FDI inflow and FDI outflow have crowding-in effects on DI. Hence, it can be concluded that for EMEs FDI outflow is also equally important in addition to FDI inflow to augment DI. The impact of 2008 crisis was also examined in the light of FDI outflows and inflows from EMEs. Results based on FMOLS and DOLS indicate that 2008 crisis negatively affected the FDI inflow but the effect on outflows was not statistically significant. These results advocate for a protection mechanism from the financial crises for the EMEs as the FDI inflow declined during the period. Further incentivizing the domestic firms investing abroad for technologies and synergies as FDI outflow also enhances growth.

This study explores the dual role of Foreign Direct Investment (FDI) inflows and outflows in shaping India's economic growth from 2000 to 2022. Employing advanced econometric tools such as Autoregressive (AR) models, Moving Average (MA) Models, Johansen Co-integration, and Granger Causality tests, the research investigates the dynamic interrelationship between FDI trends and economic performance. The analysis confirms a long-term equilibrium between FDI inflows and outflows, with past values significantly predicting future movements, especially in outflows. FDI inflows have fueled sectoral development, employment, and technological advancement, while outflows signify India’s growing global footprint and strategic investments abroad. The Granger Causality test indicates that outflows predict inflows but not vice versa. These findings highlight the importance of FDI as a catalyst for economic development and suggest that a balanced and strategic approach to both inward and outward FDI can enhance India's position in the global economy. The study offers key insights for policymakers and investors alike.

What determines Foreign Direct Investment (FDI) inflows remains a primary concern of economists and policy makers; yet the uncertainty surrounding FDI theories and empirical approaches has created ambiguity regarding the determinants of FDI. This paper applies Leamer’s (1983, 1985) traditional Extreme Bounds Analysis (EBA) as well as the Sala-I-Martin modified form of EBA to identify the robust determinants of FDI using cross-sectional data (averaged for the period of 1985-2016) covering 103 emerging and developing countries. We consider 33 potential economic, political and institutional determinants. To address concerns about multicollinearity, the VIF restriction specifies that only estimates with VIF below five are reported. The results show that all variables of interest are fragile determinants of FDI when using traditional EBA. Yet, when applying the Sala-i-Martin EBA, nine robust variables are revealed. Some policy implications are discussed.

Previous studies on the determinants of foreign direct investment (FDI) have predominantly focused on developed and emerging economies. However, there seem to be few studies concentrating on a comparative analysis of vast African and Asian countries. This paper analysed drivers of foreign direct investments (FDI) to Asian and African economies using a panel dataset from 1980 to 2013.This study used Granger causality test, under vector error correction modelling (VECM) to test for causality among the variables. While the drivers of FDI inflows were measured using five dimensions as proposed by Anyanwu; the dependent variable, FDI inflows, was proxied by the ratio of FDI flows to gross domestic product (GDP). Findings revealed that variables manifesting the determinants of FDI inflows positively affected FDI into these continents. Specifically, factors such as trade openness, macroeconomic condition, infrastructural development, and monetary union have positive and significant effect on FDI to Asian economies. No significant relationship was found between FDI inflows and market size to the Asian continent during the study period. On the other hand, trade openness, macroeconomic condition, market size and infrastructural development have positive and significant effects on FDI inflows to African economies although there was no significant relationship between FDI inflows and monetary union to the African continent during the study period. In fact, there were bi-directional relationships between FDI inflows and some of the determinants in both continents. Theoretically, this model provides predictive implications on improved FDI inflows, given the activities of critical variables manifesting as determinants of FDI inflows.

PurposeHigher economic growth accompanied by rising energy demand poses severe challenges to the long-term environmental sustainability of E7 economies, including Brazil, China, India, Indonesia, Mexico, Russia and Turkey. Thus, this paper explores the influence of foreign direct investment (FDI) inflows on energy diversification for E7 economies.Design/methodology/approachThe dataset is panel data for emerging seven (E7) economies, covering the period 1992–2017. The empirical investigation relies on econometric techniques: panel cointegration test and panel autoregressive distributed lag model.FindingsThe findings reveal that energy diversification and FDI inflows are cointegrated. In the long run, higher FDI inflows encourage energy diversification, but energy efficiency improvements discourage energy diversification. In the short run, the effects of FDI inflows on energy diversification vary across E7 economies, highlighting the role of country-specific factors in determining the short-run influence of FDI inflows on energy diversification.Research limitations/implicationsThe findings suggested that FDI policies should encourage the adoption of nonconventional energy resources to stimulate energy diversification in E7 economies. Besides, better coordination between energy diversification and energy efficiency policies is required in the long run for a successful transition towards low-carbon economy goals.Originality/valueThis study is a unique empirical exercise that uncovers a cointegrating relationship between energy diversification and FDI inflows for E7 economies. Moreover, the analysis provides homogenous long-run and heterogeneous (country-specific) short-run coefficient estimates for the effect of FDI inflows on energy diversification.

The global economic crisis affected most of developed economies in North America and Europe which was likely to trigger a trickle-down effects on Sub-Saharan Africa. This effect was characterized by falling exports demand, foreign capital inflows in terms of foreign direct investment (FDI), foreign aid inflows and remittances from African immigrants working in the ICs. This paper investigated the effects of economic crisis on FDI and the foreign aid inflows in four countries which include Botswana, Kenya, Malawi and Mozambique. Panel data was used for analysis with OLS, Random Effects and Maximum Likelihood Estimation from 1990-2010 was conducted. The results show that contrary to the expectation that economic crisis had negative effects on FDI inflows in SSA it was the other way round. Economic crisis has a positive impact on FDI inflows. This maybe because of natural resource oriented FDIs in Mozambique and Botswana and low integration in world markets for Kenya and Malawi (Most FDI are primary resource base such as agriculture).

Multinational Firms, FDI Flows and Imperfect Capital Markets

The Impact of Governance on Foreign Direct Investment Performance in Amhara Region Title

PurposeThis paper investigates how the gap between the host country's actual and optimal financial conditions affects foreign direct investment (FDI) inflows through evidence from China.Design/methodology/approachThe authors first employ principal component analysis (PCA) to measure FDI target countries' actual financial conditions and use 30 OECD countries as a reference group to assess the optimal financial condition. The authors then estimate a two-way fixed effect model with panel data of China's outward FDI in 64 countries for the period 2003–2017 to get the regression results. The authors' results overcome endogeneity and are robust.FindingsResults show that (1) the gaps between host countries' actual and optimal financial conditions positively affect FDI inflows from China; (2) there is a heterogeneous effect between low-income and high-income countries. The gaps for high-income countries significantly increase FDI inflows from China, while the gaps are not significant for low-income countries.Research limitations/implicationsThe authors examine how the gap affects FDI inflows from China. An increase of 1% in the target country's gap promotes a 6.3% increase in FDI inflows. However, the authors do not explore what mechanisms are key to these results. The authors will explore these questions in the future.Originality/valueThis paper complements the influence factors of FDI and enriches theories of FDI. The gap between actual and optimal financial conditions plays an essential role in FDI flows across countries for policymakers.

Determinants of foreign direct investment in BRICS- does renewable and non-renewable energy matter?

This study investigates the impact of foreign direct investment (FDI) inflow on the financial costs of local firms. We develop a simple theoretical model for the banking market to illustrate the decrease in financial costs after FDI inflow. The model’s predictions are then verified by analyzing bank lending data of six cities in an Eastern Chinese province for the period 2010–2015. Our results show that (1) the financial costs of FDI recipients and local firms decline with FDI inflow; (2) among local firms, private-owned firms and micro-, small- and medium-sized enterprises experience a greater drop in financial costs than state-owned firms and (3) Cost of liquid loans (short- and mid-term loans) decreases more than that of long-term loans.

By using annual time series data spanning 1995 to 2021, this study examines the key factors that influence foreign direct investment (FDI) inflows to Malaysia. This study employed the conventional determinants of FDI and incorporated an under-studied corruption variable to capture the political impact on FDI inflows to Malaysia. The ARDL bounds test results identified short- and long-run positive relationships between FDI inflows and two tested variables: market size and education. A positive long-run relationship was also found between inflation rates and FDI inflows. By contrast, infrastructure facilities were found to be negatively related to FDI inflows in the long run. More importantly, the results ascertained that higher corruption levels hamper FDI inflows to Malaysia in the long term. Moreover, the Granger causality test revealed that market size, inflation rate, and infrastructure facilities are critical causal factors that explain the fluctuations in FDI inflows to Malaysia. In light of the results obtained, some policy recommendations are highlighted to help enhance the attractiveness of FDI, thereby stimulating economic growth in Malaysia.

Background: Foreign direct investment (FDI) is vital for developing countries like Nepal to access foreign capital, drive economic growth through technology transfer, open new investment and research opportunities, and harness their abundant natural resources. With Nepal experiencing a capital shortage, FDI plays a crucial role in bridging the resource gap and stimulating economic activities in the country. Objective: The study examines the relationship between FDI and economic growth, gross domestic savings (GDS), trade openness, as well as the impact of policy (liberalisation) and security variables in Nepal. Methods: The study employs data from secondary sources, such as the Nepal Rastra Bank, the Ministry of Finance, and the Central Bureau of Statistics, along with a database on the Nepalese economy from 1996 to 2019. The study utilises the Autoregressive Distributed Lag (ARDL) model for the evaluation and interpretation of the results. Results: The findings of this study demonstrate a positive and statistically significant relationship between Real Gross Domestic Product (RGDP), Real Gross Domestic Saving (RGDS), and Trade Openness (Xm) with Foreign Direct Investment (FDI) inflow in Nepal in the long run. Likewise, the Liberalization Policy positively affects FDI, although it lacks statistical significance. However, the presence of poor security conditions during the civil war exerts an adverse impact on FDI inflow. Conclusion: The empirical analysis provides compelling statistical evidence supporting the claim that Trade openness and RGDP positively impact FDI in the long run. It signifies the potential of FDI as a significant resource capable of contributing to economic growth, with trade openness facilitating the inflow of FDI in the economy. Furthermore, Gross Domestic Saving appears to be a significant determinant of FDI, as it fosters capital formation within the economy, ultimately promoting increased FDI inflows. Likewise, the success of FDI attraction in Nepal is contingent upon effective Liberalisation and Privatisation policies alongside a stable political environment, which collectively play pivotal roles in facilitating and sustaining FDI inflows. Implications: The study suggests that policymakers should focus on the timely reformation of economic policies and should pay close attention to providing security and ensuring an investment-friendly environment. The government should encourage increased savings through the better facilities of financial institutions and promote international trade and infrastructure development. Keywords: FDI, Gross Domestic Savings, Economic Growth, Trade Openness, ARDL Paper Type: Research Paper

This study investigates the influence of country risk on foreign direct investment (FDI) inflows in ASEAN nations over the period 1998–2022, focusing on political, economic, and financial risk components. Employing the Fixed Effects Model (FEM), this study analyzes panel data across ASEAN countries to assess how different aspects of country risk affect FDI attraction. The findings reveal that while no significant overall connection exists between country risk and FDI inflows across the entire sample, country-specific characteristics play a crucial role. Specifically, negative impacts are observed in developing nations, nations with lower FDI inflows, and those with relatively low-risk profiles. Political risks significantly discourage foreign investments, especially in developing economies, economies with difficulty attracting foreign capital, and those considered high-risk. By contrast, financial and economic risks generally exhibit no significant influence on FDI. Nonetheless, reducing economic risk emerges as an important factor for enhancing FDI in countries with low levels of FDI attraction, whereas mitigating financial risk is critical for countries that attract higher volumes of FDI. Country risk impacts FDI inflows in a nuanced, country-specific manner, with political risk being the most significant deterrent for developing and high-risk ASEAN nations. Based on this finding, we are able to provide recommendations to address distinct dimensions of country risk and foster a more favorable investment environment across ASEAN member states.