Original scientific paper
https://doi.org/10.1080/1331677X.2022.2129406
How does the sectoral composition of FDI induce economic growth in developing countries? The key role of business regulations
Sami Ullah
Rundong Luo
Kishwar Ali
Muhammad Irfan
Abstract
The prior empirical outcomes on the FDI-growth relationship are
vastly conflicting. The key possible reason for these conflicting findings
is the use of aggregate FDI, while FDI impacts largely depend
on the receiving sectors of the host country. This study empirically
estimated the influence of sectoral FDI on the economic growth and
the role of business regulations in influencing the FDI-growth connection
of 85 developing countries, for the time 1996–2019 and
applied 2SLS method. The outcomes indicate the significant contribution
of sectoral FDI inflows to economic growth. In contrast, the
interaction of regulations with sectoral FDI negatively impacted host
countries’ economic growth. Furthermore, in low income countries,
only agriculture and industry FDI have growth promoting effect,
while manufacturing and services FDI are insignificant. Similarly, FDI
inflows to all sectors positively affect middle income countries’ economic
growth except services FDI. However, FDI inflows to all sectors
enhance high income countries economic growth. The regulations’
interaction with all types of FDI adversely affects the economic
growth across all income groups, except agriculture and services FDI
in the case of low and high income countries, which are found insignificant.
The outcomes are consistent by employing diverse econometric
techniques and model specifications.
Keywords
Sectoral FDI; economic growth; regulations; developing countries; 2SLS; GMM
Hrčak ID:
306674
URI
Publication date:
30.4.2023.
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