Original scientific paper
https://doi.org/10.1080/1331677X.2024.2343375
The moderating role of institutions between FDI and GDP: evidence from China and India
Vito Bobek
Saji Majaj
Tatjana Horvat
Abstract
Several research efforts were dedicated to analysing the effects of
foreign direct investment (FDI) inflows on gross domestic product
(GDP) and employment in the host economies. The variations in
the conclusions signal that other variables influence and moderate
the effects of FDI on GDP and employment. Institutional elements
receive limited research attention, despite their influence
on the host economies. This paper investigates the moderating
role of institutional elements in the FDI-host economies on FDI’s
effects on GDP and employment with China and India as case
studies. The approach utilises three principal methodologies. The
first methodology presents an in-depth analysis of China and
India, highlighting selected institutional elements with the potential
to influence FDI’s effects. The second methodology confirms
the presence of a positive correlation between FDI and GDP and
a negative correlation between FDI and employment-to-population
ratio (EPR) in both China and India. The FDI, GDP purchasing
power parity per capita, and EPR datasets are extracted from the
World Bank – DataBank World Development Indicators to ensure
the consistency of the data. The results of the quantitative analysis
validate the qualitative analysis. The qualitative analysis confirms
the moderating role of the selected institutional elements
with variations in direction and strength. Significant variations in
FDI’s effects on GDP and employment are strongly related to variations
in the institutions of governance. The institutions of governance
include the functionality of the state organs, the
efficiency of the legal system and enforcement of the rule of law,
and the quality of implementation of FDI-supportive policies. The
findings aim to increase the absorption of the positive effects of
FDI on GDP and employment in the respective countries. The
research is a cornerstone of in-depth future research into the following
areas: the role of selective FDI and constructive conditional
FDI policies, the functionality of judicial authority controls,
and FDI favourable exchange rates and interest rates policies. The
novelty and contribution of the paper lie in its comprehensive
exploration of the moderating role of institutional elements on
the effects of FDI on GDP and employment in host economies,
with a specific focus on China and India. The paper contributes
significantly to the academic literature on FDI and economic
development by emphasising the importance of institutional
factors and providing actionable insights for policymakers
and researchers.
Keywords
Institutions; FDI; GDP; employment-to-population ratio (EPR); China; India
Hrčak ID:
321750
URI
Publication date:
11.5.2024.
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