The IUP Journal of Applied Economics
Revisiting the FDI-Growth Nexus for BRICS Economies: New Panel Data Evidence

Article Details
Pub. Date : April, 2021
Product Name : The IUP Journal of Applied Economics
Product Type : Article
Product Code : IJAE20421
Author Name : Bashir Ahmad Joo and Sana Shawl
Availability : YES
Subject/Domain : Economics
Download Format : PDF Format
No. of Pages : 13

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Abstract

Owing to globalization, there has been a significant policy shift towards outwardlooking market-oriented developmental strategies, which is more evident in the developing world. This trend has led to a remarkable increase in Foreign Direct Investment (FDI) inflows as a means of acquiring technology and skill contributing to the overall economic development of a country. Since FDI offers to channelize resources towards productive activities, this has propelled researchers to investigate the role of FDI in promoting growth, more particularly in developing economies. The growth literature reveals a shred of conflicting evidence regarding the growthperformance of FDI. So, the present study serves to be an addition to the existing literature conducted to re-examine the FDI-growth linkage using recent data over a relatively long period for the fastest growing Brazil, Russia, India, China and South Africa (BRICS) economies selected meticulously for being representative developing economies and significant players in attracting inward FDI. Using the cluster regression estimation method for random effects over the period 1987-2018, the study finds a significant positive impact of FDI on the economic growth, thereby supporting the growth-enhancing role of FDI.


Introduction

Over the past three decades, countries across the globe have witnessed an immense surge in Foreign Direct Investment (FDI) inflows. FDI is defined as an investment reflecting a lasting interest and control by a foreign direct investor, resident in one economy, in an enterprise, resident in another economy (UNCTAD, 2018). It is widely believed that foreign direct investment has a positive impact on the host (FDI-receiving) country's economic growth and development. The theoretical basis for empirical research on FDI-growth relationship springs from either the neo-classical or endogenous growth models. In the neoclassical growth model, it is argued that the volume and efficiency of investment are increased due to

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