Does FDI enhance economic growth?

New evidence from East Asia

Foreign direct investment (FDI) has increased rapidly in East Asian countries over the past two decades, and
many studies find that it has significant linkages with economic growth. This paper examines the impacts of
FDI in groups of 15 East Asian countries classified by level of economic development, using panel data
analysis together with cointegration methods. The results show that favourable impacts of FDI on East Asian
countries depend on complementary factors, particularly each host country's economic conditions such as
levels of financial market development, institutional development, better governance, and appropriate
macroeconomic policies. Furthermore, East Asian countries need to increase their investment in fundamental
infrastructures, human capital development, and facilities for enhancing international trade and investment
climate.
Keywords: International investment, economic growth, East Asia, models with panel data.
I. Introduction
During the past two decades, there has been a major shift in degree of capital inflows into East Asian
countries because the investment atmosphere of East Asia has been increasingly attractive. The growth rates
of most countries were high and the investment returns offered attractive yield to foreign investors. In theory,
capital inflows should offer large benefits to host countries in terms of improving resource allocation,
facilitating cross-border transfers of knowledge and technology, improving risk diversification, and
promoting financial market reforms. However, if the recent surge in capital inflows is in the form of
short-term capital inflows, it will render the economies unstable. Nevertheless, in East Asian countries,
foreign direct investment (FDI) seems to be perceived as most important, both in terms of its size and its
impacts compared to other types of capital flows.
Many studies have concluded that FDI is a long-term capital inflow and has the smallest fluctuation
compared to other types of capital flows (Corsetti 1998; Turner 1991; Samo and
Tylor 1999; and Claesssens et al. 1995), and Wiboonchutikula et al. (2001). Furthermore, FDI seems to be
encouraging growth in the host economy rather than causing economic instability. For example, by applying
the Solow-type standard neoclassical growth models, Brems (1970) suggested that FDI increased the capital
stock and thus, growth in a host economy by financing capital formation. In neoclassical growth models with
diminishing returns to capital, FDI has only a short-run growth effect as economies move towards a new
steady state. Accordingly, the impact of FDI on growth is identical to that of domestic investment. Therefore,
FDI should offer substantial benefits to host countries rather than having a negative impact on economic
stability and growth.
FDI is often assumed to be more productive than domestic investment in endogenous growth models. The
logic behind this is that FDI encourages the incorporation of new technologies in the production function of
the host economy (Borensztein, De Gregorio, and Lee 1998). In this view, FDI-related technological
spillovers offset the effects of diminishing returns to capital and keep the economy on a long-term growth
path. Moreover, endogenous growth models imply that FDI can promote long-run growth by augmenting the
existing stock of knowledge in the host economy through labour training and skill acquisition. The
introduction of alternative management practices and organizational arrangements brought by FDI also assist
growth (see, for example, de Mello 1997). Hence, through capital accumulation and knowledge spillovers,
FDI may play an important role for economic growth. Furthermore, FDI can possibly stimulate economic
growth through the international trade channel by augmenting domestic capital for exports, helping the
transfer of technology and the manufacturing of new products for exports, facilitating access to new and large
foreign markets, providing training programmes for the local workforce and upgrading technical and
management skills.

However, according to Kose (2006), the impact of FDI to economic growth depends on a host economy's
economic foundation. Countries meeting appropriate conditions such as enough level of financial market
development, institution development, better governance, and appropriate macro policies tend to reap better
growth and stability benefits, or "collateral benefits", from FDI. Kose concluded that the difference in initial
economic conditions in the host economy would influence the macroeconomic outcomes of capital inflows.
In this study, we will analyse how FDI affects economic growth of the host economies in East Asian
economies. The objective of this study is not only to examine the impact of FDI on host countries' growth but
also to examine the effects of threshold conditions in East Asian economies. We will separate fifteen
economies in East Asia into three groups with different initial economic conditions and compare the impact
of FDI among them. We ascertain that the impact of FDI on growth varies among different groups of the
economies. In our study, we apply a panel cointegration technique using pooled regression model and fixed
effect model to analyse the differential impact. The findings from this study will increase our understanding
on how FDI affects economic growth and will help policymakers in searching for policies that promote
economic growth that contributes to sustainable development.
Section II will provide the overall overview of FDI and economic growth in East Asian economies during
1990-2009. In section III, we present some review of literatures on the impacts of FDI on economic growth.
Section IV presents our empirical model, with the results of this study presented in section V. Finally, our
conclusion and policies implication are presented in section VI.
II. Overview of FDI Flow and GDP Growth in East and Southeast Asia
In order to determine the relationship between FDI and a host economy's economic growth, we look at trends
of GDP growth, FDI, and other economic conditions. During the past two decades, there has been a major
shift regarding the size and composition in the cross-border financial flows to developing economies,
especially in East Asian economies. According to data from World Economic Outlook, IMF and World
Investment Report, UNCTAD, FDI flows and foreign portfolio flows to developing economies started
growing in the 1980s and expanded at an accelerated rate after 1990, as shown in Figure 1. For all types of
capital flows, FDI is the most important source of funds relative to other types of investment flows,
especially in East Asian developing countries. Table 1 shows that inward FDI in East Asia has increased
dramatically. The volume of FDI inflows during 2006-09 was as high as US$972 billion, compared to only
US$556 billion during 1996-2000, showing a near twofold increase. Even in 1997, the year of Asian financial
crisis, the value of inward FDI to the selected economies dropped only about 2 per cent. When the situation
recovered in 1998, the value of inward FDI with inflows to these economies grew about 6 per cent. Among
East Asian regions and developing economies, China and Hong Kong were major FDI recipients while
Singapore was another country that had a high proportion of FDI. In 2009, FDI inflows to East Asia
amounted to US$230 billion. One important factor of FDI flows to the region during the past few years has
been the increasing importance of China and India as host economies. With its inflows reaching
approximately US$108 billion in 2008, China became the third largest FDI recipient country in the world. In
India, leading transnational corporations (TNCs) in many manufacturing and service industries have sped up
their investment expansion. As a result, FDI flows to India increased, continuing the trend of the previous
two years.
As discussed briefly in the previous section, the impacts of FDI are different in economies which have
different initial or threshold conditions. We have divided our sample economies according to their threshold
in education (ratio of public expenditure on education to GDP), ratio of public investment to GDP
representing investment in infrastructure, financial development, corruption index, and trade openness. These
economies were categorized into three groups: (1) high-income economies including Hong Kong, Japan,
South Korea, Singapore, and Taiwan; (2) middle-income economies including China, India, Indonesia,
Malaysia, the Philippines, and Thailand; and (3) low-income economies including Cambodia, Laos,
Myanmar, and Vietnam.

[FIGURE 1 OMITTED]
Table 2 shows selected indicators which describe the initial economic conditions of each group of economies
in East Asia during 1990-2009. The amount of public expenditure on education in high-income economies
and middle-income economies stayed around 3 per cent of GDP. This was twice the value of the same
expenditure in low-income economies. After the Asian financial crisis, the level of public investment was
highest in high-income economies, hovering around 17 per cent of GDP. This was followed by
middle-income economies, which had a ratio of public investment of around 15 per cent of GDP, while the
level of public investment in low-income economies was approximately 10 per cent of GDP. This value was
more than 30 per cent lower compared to the corresponding values in high-income and middle-income
economies. For the financial development index, after the Asian financial crisis, this figure stayed around 1.7
in high-income economies, which was about twice the value of the index in middle-income economies and
about eight times larger than in low-income economies. The Corruption Perceptions Index was highest in
high-income economies followed by middle-income economies and low-income economies, with a high
figure representing a low level of corruption. The level of trade openness in high-income economies was 191
per cent, which was approximately twice the value of the level in middle-income and low-income economies.

From Table 2, we can conclude that there are differences in the degrees of investment in education, public
investment in infrastructure, trade openness, financial market development, and corruption levels among
these three groups of economies. High-income economies seem to have the best threshold conditions because
they have the highest values in categories that are important to growth. This relationship between the
categories and rankings is present in the other two groups of economies, with the middle-income economies
having average values and the low-income economies having low values, respectively.
Table 3 shows that, with the exception of Japan, the economic growth rates of high-income countries have
been increasing since 1990, with average growth rates around 5-8 per cent. However, due to the Asian
financial crisis in 1997-98, the GDP growth rates of all high-income countries except for Taiwan became
negative in 1998. The countries that were most adversely affected were Hong Kong and Korea, but all
successfully recovered after the crisis and grew at an average rate of 5 per cent in 2001-05. During 2007 to
2009, the economic growth rates of high-income countries declined in response to the worsened global
economic conditions in the aftermath of the subprime crisis.
Amongst middle-income countries, China has the highest growth rate, followed by India. China's economic
growth rate, in particular, had been increasing since 1990 and the average growth rate was about l0 per cent.
For other middle-income economies, all suffered from negative growth rates due to the financial crisis in

1997. However, most economies quickly recovered from this and growth rates increased during 2001-05.
Growth slowed down during 2007-09 before rising again in 2010, as with other country groups.
The low-income countries did not experience the bust and boom cycle as was seen in the more developed
economies because all were transitional economies, which had just opened to the market economies in the
late 1980s. On average, they had comparatively low growth in the early 1990s. The growth increased slowly
in the late 1990s before benefiting from the open up after 2000, but slowed down again, much like the others
groups of countries after 2007.
To examine the relationship between FDI and economic growth, we compute the correlation between the
ratio of FDI/GDP and GDP growth. Figure 2 shows that although the relationships between FDI and GDP
growth were negative in some economies during the early period of huge capital inflows before the 1997
Asian crisis, almost all turned positive after the year 2000. We might postulate that there were some changes
in the initial threshold conditions after the crisis that enabled most countries to have an increased benefit from
the FDI.
Furthermore, although there are several potential ways for improved initial conditions to support a positive
role of FDI to economic growth, there are also many unanswered questions about how countries with
different economic conditions benefit from FDI. Therefore, an empirical analysis of this issue is needed for a
better understanding of the role of FDI, especially in East Asia since most economies are major FDI
recipients.

[FIGURE 2 OMITTED]
III. Literature on Impact of FDI on Growth
For empirical studies studying the impact of FDI on economic growth, most of them showed that FDI was
able to stimulate economic growth through the technology transfer and spillover effect (Wei et al. 2001;
Bende-Nabende and Ford 1998). FDI was seen as an important element in the solution to the problem of
scarce local capital and overall low productivity in many developing economies (De Mello 1999; Eller et al.
2005).
While some papers reported that FDI enhanced GDP growth, others reported that there was no direct
evidence of such a relationship. For example, Borenztein (1998) studied the impact of FDI on economic
growth of sixty-nine developing countries during 1970-89. He divided all countries into nine groups
according to the level of FDI and human capital and found that FDI promoted economic growth only in
countries with a high level of human capital. Bashir (1999) and Carkovic and Levine (2002) showed that

there was no impact from FDI to economic growth in seventy-two sample countries, some of which were
Asia economies, such as India, Indonesia, Malaysia, the Philippines, and Thailand. Some empirical studies
noted that FDI seemed to boost growth only in economies that had appropriate initial conditions, including
high levels of human capital, financial sector development and policies that promoted international trade.
In the view of threshold effects, Borensztein, De Gregorio, and Lee (1998), and Balasubramanyam (1999)
found that FDI had positive impact on economic growth when the country had a highly educated labour force
that could exploit the FDI spillovers. Balasubramanyam (1999) also found that good infrastructure facilities
will help FDI contribute more growth. Alfaro et al. (2004) found that FDI promotes economic growth where
financial markets are sufficiently developed. Blonigen and Wang (2005) showed that a sufficient level of
human capital was needed to get a positive growth impact from FDI. These findings show that a threshold of
development is needed for the host country to take advantage from the spillover effects of FDI. However,
there is empirical evidence suggesting that the threshold conditions are not important. For example, Carkovic
and Levine (2002) did not find evidence of education and financial market development interacting with FDI
to have an impact on the economic growth in seventy-two sample countries.
Table 4 provides a summary of literatures about FDI. Despite the theoretical presumption that GDP benefits
from FDI, it has not been easy to document these benefits. Furthermore, recent empirical research that take
more nuanced approaches by accounting for the role of various initial conditions (human capital, trade
openness) have been more successful in showing the potential links between FDI and growth.

According to empirical studies (Levin and Rant 1997; Zhang 2003). FDI can apply to growth models in two
ways, depending on different assumptions. FDI can be postulated to cause growth directly or alternatively,
hypothesized to affect growth through the spillover effects. In the case that we assume FDI will directly
cause growth, the capital stock in the Solow production function is assumed to consist of two components:
domestic and foreign owned capital stock [K.sub.t] = [Kd.sub.t] + [Kf.sub.t] and we will have:
[Y.sub.it] = [A.sub.it] x [L.sup.bl.sub.it] x [Kd.sup.b2.sub.it] x [Kf.sup.b3.sub.it] (1)
Where [Y.sub.it] is output, [Kd.sub.it] and [Kf.sub.it] represent the domestic and foreign owned capital
stocks, respectively, [L.sub.it] is the labour, Act is the level of productive efficiency, the so-called total factor

productivity, which explains the output growth that is not accounted for by the growth in factors of
production specified, subscript i = 1 ..... N stands for country i to country N, and subscript t = 1, ... T stands
for time period t, starting from 1 to T.
Nevertheless, if we alternatively specify that FDI affects growth through the spillover effects, the total factor
productivity variable A has to be endogenized as a function of FDI. An example can be found from the study
of Zang (2003), which applied the endogenous growth model to formulate that FDI affects the output growth
through enhancing the total factor productivity. The model is designed to have the following form.
[Y.sub.it] = [A.sub.it] x [L.sup.[alpha].sub.it] x [K.sup.[beta].sub.it] (2)

[A.sub.it] = B x [FDI.sup.[gamma].sub.it] (3)

Where [Y.sub.it] denotes country's output, [L.sub.it] is the labour, [K.sub.it] is capital stocks, [A.sub.it] is the
total factor productivity, B is a constant term, and FDI is foreign direct investment. Subscript i stands for
country i, and subscript t stand for time period t, similar to equation (1). After substituting technologies (A)
into the production function and taking the logarithm, the production function was obtained:
ln([Y.sub.it]) = C + [alpha] ln([L.sub.it]) + [beta] ln([K.sub.it]) + [gamma] ln([FDI.sub.it]) + [u.sub.it] (4)
IV. Estimation Model of Impact of FDI on Growth in East Asia
In our study, we apply FDI to the growth function based on the assumption that FDI can stimulate economic
growth through the technology transfer and spillover effect (Wei et al. 2001; Bende-Nabende and Ford 1998).
Moreover, according to Kose (2006), the growth benefits also depend on initial threshold conditions such as
financial market development, institutional development, better governance, and macroeconomic discipline.
Edward (1997), Yanikkaya (2002), Balamurali and Bogahawatte (2004), and Roy and Berg (2006) concluded
that level of human capital and infrastructure can increase technology of production. Their studies also
showed that countries with a high degree of trade openness tend to have more ability to absorb technology
which comes from FDI. Therefore, in this study, we postulate that the level of human capital (HK), the level
of infrastructure (IF), financial market development (FD), and international trade policy (TRADE) also have
an impact on technological capability or total factor productivity. Together with FDI, the variable
representing the initial threshold conditions can be shown in the following form:

[Y.sub.it] = [A.sub.it] x [L.sup.b1.sub.it] x [K.sub.it] (5)

[A.sub.it] = B x [FDI.sup.b3.sub.it] x [HK.sup.b4.sub.it] x [IF.sup.b5.sub.it]. [TRADE.sup.b6.sub.it] x

[FD.sup.b7.sub.it] x [COR.sup.b8.sub.it] (6)
We used the public expenditure on education as the proxy for the level of human capital (HK) which reflects
the institutional development in host economies. The public investment was used as the proxy for the level of
infrastructure (IF). Trade openness was used for the degree of international trade (TRADE). The public
investment and trade openness reflected host economies' macroeconomic discipline. We used financial
development index (M2/GDP) as the proxy for the level of host economies' financial market development
(FD). The Corruption Perceptions Index (COR) was used as the proxy for the level of better governance in
host economies because it had enough numbers of observations, allowing the use of econometric analysis
technique.
After substituting the technology function (6) into the production function (5) and taking the logarithm, the
function becomes:
ln([GDP.sub.it]) = [b.sub.0i] + [b.sub.1] ln([L.sub.it]) + [b.sub.2] ln([K.sub.it]) + [b.sub.3] ln([FDI.sub.it]) +
[b.sub.4] ln(H [K.sub.it]) + [b.sub.5] ln([IF.sub.it]) + [b.sub.6] ln([TRADE.sub.it]) + [b.sub.7] In([FD.sub.it])
+ [b.sub.8] ln([COR.sub.it]) + [u.sub.it] (7)
In addition to studying the direct impact of FDI and each variable representing the initial threshold conditions
on growth, we also investigated how the interaction between FDI and each initial condition variable could
possibly affect growth. For example, if the interaction term between FDI and level of human capital is
positive and statistically significant, it means that countries which have high level of human capital will
receive higher benefits from FDI in encouraging economic growth. We specified that the level of human
capital, the level of investment in infrastructure, the level of international trade, the level of financial
development and the level of corruption interacted with FDI in promoting economic growth. Then,
interaction terms between FDI and these variables (ln([HK.sub.it])*ln([FDI.sub.it]),
ln([IF.sub.it])*ln([FDI.sub.it]), ln([TRADE.sub.it])*ln([FDI.sub.it]), ln([FDI.sub.it])*ln([FD.sub.lit]),

and ln([COR.sub.it])*ln([FDI.sub.it]) were then added to equation (7). Variables which affected growth
including inflation rate (Inf), and the dummy variable which captured the impact of financial crisis in 1997
(D97) were also added into the equation in order to get a better result. The final form of our equation for
estimation is equation (8).
ln([Y.sub.it]) = [b.sub.0i] + [b.sub.1] ln([L.sub.it]) + [b.sub.2] ln([K.sub.it]) + [b.sub.3] ln([FDI.sub.it]) +
[b.sub.4] ln([HK.sub.it]) + [b.sub.5] ln([IF.sub.it]) + [b.sub.6] In([TRADE.sub.it]) + [b.sub.7] ln([FD.sup.it])
+ [b.sub.8] ln([COR.sub.it]) + [b.sub.9] [Inf.sub.it] + [b.sub.810] [D97.sub.it] + [b.sub.11]
ln([HK.sub.it])*ln([FDI.sub.it]) + [b.sub.12] ln([IF.sub.it])*ln([FDI.sub.it]) + [b.sub.13]
ln([TRADE.sub.it])*ln([FDI.sub.it]) + [b.sub.14] ln([FD.sub.it])*ln([FDI.sub.it]) + [b.sub.l5]
ln([COR.sub.it])*ln([FDI.sub.it]) + [u.sub.it] (8)
In equation (8), Y denotes country's GDP (US$ million). L is the labour (thousand person), K is domestic
investment (US$ million), FDI is foreign direct investment (US$ million), HK is public expenditure on
education (US$ million), IF is public investment in infrastructure (US$ million), TRADE is trade openness
(per cent), FD is financial development index (M2/GDP), COR is Corruption Perceptions Index, Inf is
inflation rate (per cent), and D97 is the dummy variable for financial crisis in 1997 which is equal to 1 during
the 1997-98 period and is equal to zero otherwise. Subscript i stands for country i in each group of
economies; i = 1, ..., 5 in high income group of economies, i = 1, ..., 6 in middle income group of economies,
and i = 1,..., 4 in low income group of economies. Subscript t = 1990,..., 2009 stand for time period
1990-2009.
To study the relationship among time series variables, we used panel cointegration analysis to avoid the
spurious results which might occur when using ordinary regression with non-stationary variables. There were
three steps in panel cointegration analysis: firstly, the ADF panel unit root test was used to test whether the
variables used in this study were stationary or not, with the null hypothesis being that each variable was
non-stationary. If the variables were stationary, we could use panel regression to estimate equation. If the
variables were non-stationary, we had to use panel cointegration analysis. Secondly, if the variables were
non-stationary, we had to verify that all variables had long-run relationship by using panel cointegration test
based on single-equation Engle-Granger (1987) two-step procedure, with the null hypothesis of this test being
that all variables in the equation were not cointegrated. Finally, when all of the variables were identified as
cointegrated or had long-term relationship, we could estimate the long-run equation by using pooled
regression model and fixed effect model. In this study, we were not able to apply random effect model to
analyse the impact of FDI on economic growth because the number of variables in our model was greater
than the number of cross sections in the model. The number of variables in the model was fourteen, while the
number of cross-section in the model was five in the high income and middle income groups, and four in the
low income group; this did not match the conditions required for the random effect model. The estimation
procedure in this study is show in Figure 3.
Data for the period of 1990-2009 were collected from several official publication sources
such as the International Monetary Fund (IMF), World Bank, United Nation Conference on Trade and
Development (UNCTAD), and data from CEIC database.
[FIGURE 3 OMITTED]

Since the main hypothesis for our work is that FDI is an important factor for the economic growth, the
coefficient value of FDI ([b.sub.3]) in equation (8) should be positive and statistically significant. Moreover,
the coefficient value [b.sub.11] to [b.sub.15] should be positive and statistically significant to show that other
initial economic factors can support FDI in stimulating economic growth. According to growth theory, the
coefficient value of L ([b.sub.1) and K ([b.sub.2]) should be positive and statistically significant. The
coefficients of other variables except for inflation and dummy variable should also be positive and significant
(Edward 1997; Yanikkaya 2002; Balamurali and Bogahawatte 2004; Kose 2006; and Roy and Berg 2006).
V. Estimation Results
The results for determining stationary variables was achieved by considering ADF--Fisher Chi-square in
Appendix Table 1, and we were able to determine that most variables in the model except for labour,
inflation rate, and corruption perceptions index were non-stationary at the level form; however, they were
stationary at the first difference form. Although the variables used in this study were non-stationary at level
form, these variables had long-run relationship when linear combination among these variables (the residual
of the equation) was stationary.
Secondly, we use panel cointegration test based on single-equation Engle-Granger (1987) two-step procedure

to test whether there was long-run relationship between FDI and other variables. The results of panel
cointegration test are shown in Appendix Table 2. The column "Panel ADF statistics" show that FDI and
other macroeconomic variables were cointegrated. In other words, there was long run relationship among
FDI and other macroeconomic.
In the next step, we verified the relationship between FDI and economic growth by employing the causality
test based on Granger's (1969) definition of causality. The null hypothesis of this test was that FDI did not
cause GDP growth or vice versa. The results, in Appendix Table 3, show that, for high income economies,
there was causation from FDI to economic growth at 5 per cent level of significance in most economies
except for Korea and Japan. Although Japan invested in other economies in East Asia, there was very little
FDI inflow into Japan. For South Korea, GDP growth appeared to attract more FDI but not vice versa and the
value of FDI inflows was also very small. For middle-income economies, F-statistic values of this test
indicated causation from FDI to economic growth at 10 per cent level of significance for all economies. In
contrast, GDP growth seemed to attract more FDI only in China, India, and Thailand. In low-income
economies, F-statistic values indicated causation from FDI to economic growth for Laos and Vietnam but not
for Cambodia and Myanmar. However, GDP growth did not seem to attract more FDI for all economies in
low income group. Since Korea and Japan had a low level of FDI and the results of Granger's causality test
concluded that their FDI do not have any impact on their GDP, we will drop Japan and South Korea from the
high-income economy group.
Using annual data from 1990-2009, we had only nineteen observations for each country. We were not able to
estimate the growth equation for each country because there were not enough observations. Therefore, we
estimated our growth equation using pool regression and panel fixed effect model. The results of the growth
model using pool regression and fixed effect model in Table 5 shows that FDI had positive relationship at 5
per cent level of significance with economic growth in high-income and middle-income countries. However,
FDI did not have significant effect to economic growth in low -income countries. For other initial economic
factors which could support FDI in promoting economic growth (interaction terms between FDI and other
variables) in high-income economies, all factors except Corruption Perception Index turned out to be
significant. In middle-income economies, interaction term between FDI and trade openness, FDI and
financial development index, and FDI and Corruption Perception Index were statistically significant. In
low-income economies, only interaction term between FDI and trade openness was statistically significant.
From these results, we can conclude that FDI has positive relationship with economic growth in all groups of
countries except for countries with low incomes. However, we could not detect significant interactive effects
of FDI which contain initial conditions on growth of some groups of countries. We also could not verify that
the low corruption index could combine with FDI to promote economic growth in high-income economies.
Moreover, we were not able to detect that the public expenditure on education and government investment in
infrastructure could support FDI in promoting economic growth in middle-income economies. Finally, we
could not ascertain that the public expenditure on education, government investment in infrastructure, degree
of financial market development and level of corruption could support FDI in promoting economic growth in
low-income economies. For other variables, the coefficient of labour, domestic investment, and public
expenditure on education had positive relationship at 5 per cent level of significance with economic growth
in all groups of economies. The signs of the coefficients of trade openness, financial development, corruption
index, inflation rate, and dummy variable followed the hypothesis and all are significant at 5 per cent level of
significance except for low-income group. The government investment on infrastructure had positive
relationship at 5 per cent level of significance with economic growth except for middle-income countries.
The above unsatisfactory findings might stem from the fact that the observations of some initial threshold
condition variables such as the education and corruption index variables had little variation within the same
group of countries. Therefore, we re-estimated our model by pooling the observations of all thirteen countries
in all time periods in order to find the overall effects of FDI on growth in East Asia.
The estimation results for overall economies (last column in Table 5) shows that FDI has positive
relationship to GDP growth. The coefficient in front of public expenditure on education, government

investment on infrastructure, trade openness, financial development index, and Corruption Perception Index
and their interaction terms with FDI in the equation are all positive and statistically significant. It means that,
in general, economies in East Asia which have high level of public expenditure on education, government
investment on infrastructure, trade openness, financial development, and low level of corruption will receive
more benefits from FDI in supporting GDP growth.
To summarize our study, we divided sample countries into three country groups. The results from pooled
regression and fixed effect model in high-income and middle-income countries were quite similar. FDI has
positive relationship with economic growth for high-income and middle-income countries but not for
low-income countries. For the initial economic factors, we could not detect any relationship between
economic growth and some of these factors when we divided sample countries into three groups. For
example, the coefficient of Corruption Perception Index and its interaction term between FDI were
statistically insignificant except in middle-income economies. This meant that we were not able to detect that
the level of corruption can support FDI in promoting economic growth in high-income and low-income
economies. It might be because Corruption Perception Index in high-income and low-income economies
remain quite constant and do not have enough variation in the estimating equation. Also, other economic
factors such as expenditure on education, government investment on infrastructure, and financial
development did not have enough variation, especially for low-income economies. However, when we
estimated our equation using the combined observations of all thirteen economies, we discovered that FDI
has a positive relation to GDP growth for the whole region. All of the initial economic factors and their
interaction terms between FDI are statistically significant. For example, the coefficient of Corruption
Perception Index and its interaction term between FDI are positive and statistically significant when we
estimate using thirteen economies. This means that for overall economies, economies which have a high
value of Corruption Perception Index (low level of corruption) will obtain more benefits from FDI and get
more GDP growth. The relationships between FDI and expenditure on education, government investment on
infrastructure, financial development, and trade openness are also positive and significant. It means that if we
can improve these additional supporting economic factors, host economies will obtain much greater benefits
from FDI than without the improvement.
According to our study, we conclude that FDI has a positive relationship with economic growth in East Asian
economies which have more appropriate initial economic condition. Economies which have more appropriate
initial economic condition also receive more benefits from FDI in supporting GDP growth. In high-income
countries, they have high level of all economic conditions to absorb more benefits of FDI. In middle-income
countries, degree of trade openness and financial development are high enough to absorb more benefits of
FDI. In low-income countries, even though trade does interact with FDI to have a positive impact on growth
to a certain extent, they do not have appropriate facilities from government investment and still have low
level of human capital development to support a greater growth. Therefore, low-income countries are unable
to absorb as much collateral benefit from FDI as they potentially can, unless they put an effort to improve
their threshold conditions.
VI. Conclusion and Policy Implications
The results show that FDI has a positive relationship with economic growth in high-income and
middle-income countries. These countries have appropriate economic factors such as high education level,
high government expenditure on investment in infrastructure, high level of financial development, and high
degree in trade openness. Moreover, the high-income countries which have high level of education,
government investment, trade openness, financial development, and low-level of corruption will benefit more
than middle-income countries which have high level of financial development and trade openness, but still
have corruption, and do not have enough education level and government investment. Low income
economies tend to benefit less from FDI. This may be because the low-income countries do not have
appropriate facilities from government investment. They also have low degree of trade openness, low level of
public investment on education, low level of financial development, and high level of corruption. Therefore,
the low-income economies are not capable of absorbing the benefit of FDI as the channel of technological

diffusion from developed countries. Our results support Kose et al. (2006) that appropriate economic
conditions play important roles in supporting FDI to stimulate economic growth.
Our results confirm the hypothesis that FDI can promote more economic development in countries which
have more appropriate factors such as high level of human capital, infrastructure, financial development,
large degree of trade openness, and low level of corruption. High-income economies already have
appropriate values in all factors to get largest benefits from FDI. For the middle-income economies, they
need to invest more in education and infrastructure, and decrease their level of corruption. For low-income
economies, they also need to conduct policies that allow them to invest more in education and infrastructures,
decrease their level of corruption, and make policies that help their financial market more develop. In
Cambodia, Laos, and Myanmar, they also need to carry out policies that promote more trade in order to get
greater benefits from FDI.
APPENDIX
Appendix Table 1
Panel Unit Root Test for Stationary, Null Hypothesis: Non-Stationary
ADF--Fisher Chi-square
Level Form
GDP (million US$)
labour (thousand person)
public expenditure on education
(million US$)
government investment (million US$)
trade openness (%)
Inflation (%)
domestic investment (million US$)
FDI (million US$)
Financial Development Index
Corruption Perception Index

1st different Form

11.47
58.11 **
8.86

45.19 **

24.87
20.85
55.71 **
22.83
21.98
34.55
56.05 **

75.63 **
102.40 **

45.28 **

52.48 **
79.16 **
64.75 **

Appendix Table 2
Panel Cointegration Test, Null Hypothesis: Not Cointegrated
Country Groups

Panel ADF Statistics

All ecomomies
High income economies
Middle income economies
Low income economies

-7.65
-6.01
-3.28
-4.25

**
**
**
**

NOTES:
* indicate significant at 90 per cent level of significant.
** indicate significant at 95 per cent level of significant.
Appendix Table 3
Granger's Causality Test
F-Statistic
[H.sub.0]: FDI
does not cause
GDP Growth
Cambodia
China
Hong Kong
India

1.13
7.19 **
7.89 **
3.75 *

[H.sub.0]: GDP
Growth does
not cause FDI
0.94
7.75 **
3.54 *
2.63

Indonesia
Japan
Korea
Lao
Malaysia
Myanmar
Philippines
Singapore
Taiwan
Thailand
Vietnam

2.93
0.28
1.09
5.61
2.83
2.04
2.89
4.01
6.84
3.23
4.78

**
*
*
**
**
*
**

0.45
1.50
3.58 *
2.78
0.80
0.82
1.09
0.16
0.30
3.30 *
0.63

NOTES:
* indicate significant at 90 per cent level of significant.
** indicate significant at 95 per cent level of significant.

REFERENCES
Asheghian, P. "Determinant of Economic Growth in the United States: The Role of Foreign Direct
Investment". International Trade Journal 18, no. 1 (2004): 63-83.
Balasubramanyam, V. N., M. Salisu, and D. Sapsford. "Foreign Direct Investment as an Engine of Growth".
Journal of International Trade and Economic Development 8 (1999): 27-40.

Bashir, R. "Foreign Direct Investment, Macroeconomic Instability And Economic Growth in MENA
Economies". Working Paper, University of Lyon, 1996.
Bende-Nabende, A., J. Ford, S. Sen, and J. Slater. "Foreign Direct Investment in East Asia: Trends and
Determinants". Asia Pacific Journal of Economics and Business 6 (2002): 4-25.
Blomstrom, M., and H. Persson. "Foreign Direct Investment and Spillover Efficiency in Underdeveloped
Economy: Evidence from the Mexican Manufacturing Industry". Worm Development 11 (1983): 115-35.

Blomstrom, M., R. Lipsey, and M. Zegan. "What explains developing country growth". NBER Working
Paper No. 4132. National Bureau for Economic Research, 1994.
Blonigen, B.A., and M. Wang. "Inappropriate Pooling of Wealthy and Poor Countries in Empirical FDI
Studies". NBER Working Paper no. 10378. National Bureau for Economic Research, 2004.
Borensztein, E., J. De Gregorio, and J. Lee. "How does Foreign Direct Investment Affect Economic
Growth?". Journal of International Economics 45 (1998): 115-35.
Brems, H. "A Growth Model of International Direct Investment". American Economic Review 60, no. 3
(1997): 320-31. Carkovic, M., and R. Levine. "Does Foreign Direct Investment Accelerate Economic
Growth?". Working Paper, University of Minnesota, 2002.
Caves. "Multinational Firms, Competition and Productivity in Host-Markets". Economica 41 (1974): 176-93.
Cesar C., L.A. Norman, and S. Luis. "Do Capital Flows Respond to Risk and Return?". Policy Research
Working Paper Series 3059. The World Bank, 2003.
Chowdhury, A., and G. Mavrotas. "FDI and Growth: What Causes What?". World Economy 59, no. 1
(2006): 121-29.
De Mello, Jr., L.R. "FDI-led growth: evidence from time series and panel data". Oxford Economic Papers 51
(1999): 133-51.
Dickey, D. A., and W. A. Fuller. "Distribution of the Estimates for Autoregressive Time Series With a Unit
Root". Journal of the American Statistical Association 74 (1979): 427-31.

Eaton, J., and A. Tamura. "Bilateralism and Regionalism in Japanese and US Trade and Direct Foreign
Investment Patterns". NBER Working Paper no. 4758. National Bureau of Economic Research, 1981.
Feldstein, M. "Domestic Saving and International Capital Movements in the Long Run and the Short Run".
European Economic" Review 21 (1983): 129-51.
Findlay, R. "Relative Backwardness, Direct Foreign Investment, and the Transfer of Technology: A Simple
Dynamic Model". Quarterly Journal of Economics 12, no. 1 (1978): 1-15.
Frankel, J. A. Quantifying International Capital Mobility in the 1990s. Chicago: University of Chicago Press,
1991.
Greene, W. Econometric Analysis. 5th Ed. Princeton: Pearson/Wesley, 2003.
Hermes, N., and R. Lensink. "Foreign Direct Investment, Financial Development and Economic Growth".
Journal of Development Studies 38 (2003).
Ira, K. S., M. H. Pesaran, and Y. Shin. "Testing for Unit Roots in Heterogenous Panels". Journal of
Econometrics 115 (2003): 53-74.
Jon D. H., L. Vivian, and S. N. Janet. "International Integration and Growth: A Survey and Empirical
Investigation". Review of Development Economics 5, no. 2 (2001): 289-311.
Kawai, M. "Trade and Investment Integration and Cooperation in East Asia: Empirical Evidence and Issues".
In Asian Economic Cooperation and Integration: Progress, Prospects, and Challenges, pp. 3-105. Manila:

Asian Development Bank, 2005.

Khaliq, A. "Foreign Direct Investment and Economic Growth: Empirical Evidence from Sectoral Data in
Indonesia". Working Paper, University of Hawaii, 2007.
Khan, S. "Macro Determinants of Total Factor Productivity in Pakistan". SBP Research Bulletin 2, no. 2
(2006): 383-401.
Kose, M.A., E. Prasad, K. Rogoff, and S-J. Wei. "Financial Globalization: A Reappraisal". IMF Working
Paper No. 189. Washington, D.C., International Monetary Fund, 2006.
Levin, A., C-F. Lin, and C-S. J. Chu. "Unit root tests in panel data: asymptotic and finite-sample properties".
Journal of Econometrics 108 (2002): 1-24.
Levin, A., and L. K. Rant. "Complementarities between Exports and Human Capital in Economic Growth:
Evidence from the Semi-industrialized Economies". Economic Development and Cultural Change 46, no. 1
(1997): 155-74.
Levine, R., and D. Renelt. "A sensitivity analysis of cross country growth regressions". American Economic
Review 82, no. 4 (1992): 942-63.
Lim, E. "Determinants of and relationship between foreign direct investment and growth: A summary of
recent literature". IMF Working Paper No. 175. Washington, D.C., International Monetary Fund, 2001.

Lipsey, R. E. Inward FDI and Economic Growth in Developing Economies. Vol. 9. Geneva: UNCTAD,
2000.
Lucas, R.E. "On the Mechanics of Economic Development". Journal of Monetary Economics 22 (1988):
3-42.

Mankiw, G. N., D. Romer, and D. N. Weil. "A contribution to the empirics of growth". Journal of Economics
107 (1992): 407-37.
Nathalie, A., K. C. Fung, I. Hitomi, and S. Alan. "Foreign direct investment, intraregional trade and
production sharing in East Asia". Working Papers No. 11. Macao Regional Knowledge Hub, 2008.
Ocampo J. A., and L. Taylor. "Trade Liberalisation in Developing Economies: Modest Benefits but Problems
with Productivity Growth, Macro Prices, and Income Distribution". The Economic Journal 108 (1998):
1523-46.
Pedroni, P. "Fully Modifed OLS for Heterogenous Cointegrated Panels". Advances in Econometrics 15
(2000): 93-130.
--. "Panel Cointegration: Asymptotic and Finite Sample Properties of Pooled Time Series Tests With an
Application to the PPP Hypothesis". Econometric Theory 20 (2004): 597-625.

Poonpatpibul, C., S. Tanboon, and P. Leelapornchai. "Role of Financial Integration in East Asia in Promoting
Regional Growth and Stability". Bank of Thailand Economic Symposium, Bank of Thailand, 2006.
Ram, R., and K. H. Zhang. "Foreign Direct Investment and Economic Growth: Evidence from Cross-Country
Data for the 1990s". Economic Development and Cultural Change 51, no. 1 (2002): 205-15.
Romer, P. "Endogenous technological change". Journal of Political Economy 98 (1990): 71-103.
Roy, A., and H. Berg. "Foreign Direct Investment and Economic Growth: A Time-Series Approach". Global
Economy Journal 6 (2006): 7-26.

Sayek, S., L. Alfaro, A. Chanda, and S. Kalemli-Ozcan. "How Does Foreign Direct Investment Promote
Economic Growth? Exploring the Effects of Financial Markets on Linkages". IMF Working Paper, 2004.
Solow, R. M. "A Contribution to the Theory of Economic Growth". Journal of Economics 106, no. 2 (1956):
327-67.
UNCTAD. Worm Investment Report. Geneva: United Nations Conference on Trade and Development, 1994
to 2008.
Vos, R. "Financial Liberalization, Growth and Adjustment: Some Lessons for Developing Economies". New
York: St. Martin's Press, 1995.
Wiboonchutikula, Paitoon, Bangom Tubtimtong, Lakshmi Raut, and Bundit Chaivichayachat. "An Analysis
of Thailand's Capital Flows". In Restructuring Asian Economies for The New Millennium, edited by J.
Behrmann, M. Dutta, S.L. Husted, P. Sumalee, C. Suthiphand, and P. Wiboochutikula. The Netherlands:
Elsevier Science, 2001.
Zhang, K. H. "Foreign Direct Investment in China: 1978-2002". Asian Economic and Political Issues 8
(2003): 1-18.
Polpat Kotrajaras is a PhD candidate in the Faculty of Economics, Chulalongkorn University, Thailand.
Bangorn Tubtimtong is an Assistant Professor in the Faculty of Economics, Chulalongkom University,
Thailand.
Paitoon Wiboonchutikula is an Associate Professor in the Faculty of Economics, Chulalongkorn University,
Thailand.
DOI: 10.1355/ae28-2e
TABLE 1
FDI Inflows in South, East and Southeast Asia, 1990-2009
(In US$ billion)

Cambodia
China
Hong Kong
India
Indonesia
Japan
Korea
Laos
Malaysia
Myanmar
Philippines
Singapore
Taiwan
Thailand
Vietnam

Cambodia
China
Hong Kong
India

1990-1995

1996-2000

2001-2005

2006

2007

307
117,663
29,154
4,221
13,057
6,986
5,071
204
27,929
1,154
6,170
37,438
7,331
12,021
5,680

1,080
213,479
123,109
14,533
23,608
27,710
28,612
345
24,017
2,655
8,008
63,811
12,188
23,213
8,863

891
286,161
114,771
28,828
18,785
32,398
27,921
113
14,918
1,161
4,770
69,916
9,530
27,576
7,581

483
72,715
45,060
20,328
4,247
6,507
4,881
187
6,060
428
2,921
29,056
7,424
9,517
2,400

867
83,521
54,341
25,001
4,365
22,550
2,628
324
8,538
258
2,916
35,778
7,769
11,355
6,739

2008

2009

815
108,312
59,621
40,418

533
95,000
48,449
34,613

Indonesia
Japan
Korea
Laos
Malaysia
Myanmar
Philippines
Singapore
Taiwan
Thailand
Vietnam

4,483
24,426
8,409
228
7,318
283
1,544
10,912
5,432
8,544
8,050

4,601
11,939
5,844
157
1,381
323
1,948
16,809
2,803
5,949
4,500

SOURCE: UNCTAD (2009).

TABLE 2
Economic Growth and Conditions of East Asian Economies by Income
Group
High Income
1990-97
GDP Growth (%)

1998-99

2000-09

6.0

1.5

3.6

20.3

19.7

23.6

Ratio of FDI inflow

to GDP (%)

3.4

5.8

7.4

Ratio of public expenditure

on education to GDP (%)

3.5

3.7

3.7

14.9

16.5

17.7

Financial Development
Index (M2/GDP)

1.2

1.5

1.7

Corruption Perceptions Index

6.4

6.9

7.1

151.4

152.3

191.4

Income per capita

(Billion USD)

Ratio of public investment

to GDP (%)

Trade Openness (%)

Middle Income
1990-97

1998-99

2000-09

GDP Growth (%)

7.1

1.0

6.0

Income per capita

(Billion USD)

2.0

1.6

1.9

Ratio of FDI inflow

to GDP (%)

2.6

2.7

1.9

Ratio of public expenditure

on education to GDP (%)

2.2

2.6

2.8

11.2

14.0

15.0

Financial Development
Index (M2/GDP)

0.6

0.8

0.9

Corruption Perceptions Index

3.0

3.2

3.5

82.2

105.3

111.7

Ratio of public investment

to GDP (%)

Trade Openness (%)

Low Income
1990-97

1998-99

2000-09

GDP Growth (%)

6.4

6.6

8.1

Income per capita

(Billion USD)

0.3

0.3

0.3

Ratio of FDI inflow

to GDP (%)

4.7

5.2

3.7

Ratio of public expenditure

on education to GDP (%)

1.1

1.6

1.9

Ratio of public investment

to GDP (%)

8.7

9.3

10.5

Financial Development
Index (M2/GDP)

0.2

0.2

0.3

Corruption Perceptions Index

2.1

2.1

2.1

46.5

70.5

85.1

Trade Openness (%)

TABLE 3
GDP Growth of East Asian Economies
1990-95
High Income
Hong Kong
Japan
Korea
Singapore
Taiwan
Middle Income
China
India
Indonesia
Malaysia
Philippines
Thailand
Low income
Cambodia
Laos
Myanmar
Vietnam

High Income
Hong Kong
Japan
Korea
Singapore
Taiwan
Middle Income
China
India
Indonesia
Malaysia
Philippines
Thailand
Low income
Cambodia

1996-2000

2001-05

2006

2007

2008

5.0
2.1
8.1
8.9
7.2

2.7
1.0
5.4
6.4
5.2

4.2
1.3
4.5
4.5
3.6

7.0
2.0
5.2
8.7
5.4

6.4
2.4
5.1
8.2
6.0

2.1
-1.2
2.3
1.4
0.7

10.9
5.1
7.2
9.4
2.3
9.0

8.6
6.2
1.1
5.0
4.0
0.6

9.6
6.5
4.7
4.8
4.5
5.1

11.6
9.8
5.5
5.8
5.3
5.1

13.0
9.4
6.3
6.2
7.1
4.9

9.6
7.3
6.0
4.6
3.8
2.5

5.7
6.5
5.3
7.7

7.3
5.7
8.5
7.0

9.4
6.3
12.9
7.5

10.8
8.6
13.1
8.2

10.2
7.8
11.9
8.5

6.7
7.8
3.6
6.2

2009

2010

-2.7
-5.2
0.2
-1.3
-1.9

6.0
2.8
6.1
15.0
9.3

9.1
5.7
4.5
-1.7
1.7
-2.3

10.5
9.7
6.0
6.7
7.0
7.5

-2.0

4.7

Laos
Myanmar
Vietnam

7.6
4.9
5.3

7.7
5.3
6.5

SOURCE: IMF.
TABLE 4
Empirical Studies of Impact of Foreign Direct Investment on Economic
Growth

Study

Time Period

No. of
Economies

Methodology

Balasubramanyam
and Sapsford
(1999)

1970-1985

46

Cross-section OLS

Levin and Raut

(1997)

1965-1984

30

Panel regression

Borensztein and
Lee (1998)

1970-1989

69

Panel regression

De Mello (1999)

1970-1990

31

VARs, Cointegration,
Panel regression
(Pool, FE)

Haveman, Lei,
and Netz (2001)

1970-1989

74

Panel regression
(FE)

Carkovic and
Levine (2002)

1960-1995

72

Lensink and
Momsey (2002)

1970-1998

88

Panel regression
(FE)

Hennes and
Lensink (2003)

1970-1995

67

Panel regression
(Pool, FE, RE)

Zhang (2003)

1978-2002

Alfaro, Chanda,
Kalemli-Ozcan
and Sayek (2004)

1975-1995

71

Cross-section OLS

Akut and Sayek

(2005)

1990-2002

37

Cross-section OLS

Blonigen and
Wang (2005)

1970-1989

69

Panel regression
(Pool, RE)

Adeolu (2007)

1970-2002

Study

China

Nigeria

Panel GMM

Panel regression

OLS regression

Findings

Balasubramanyam
and Sapsford
(1999)

FDI has positive impact on growth

in export-oriented economies
rather than import substituted
economies, highly educated labour
and well-developed infrastructure
facilities will help FDI contributes
more growth

Levin and Raut

(1997)

high degree of trade and education

expenditure contribute to economic
growth in 30 semi-industrialized
developing countries

Borensztein and
Lee (1998)

FDI has positive impact on growth

in economies with high level of
human capital

De Mello (1999)

Impacts of FDI depend on degree

of complementarity or
substitution between FDI and
domestic investment

Haveman, Lei,
and Netz (2001)

FDI has positive impact on

growth

Carkovic and
Levine (2002)

FDI inflows do not promote

economic growth

Lensink and
Momsey (2002)

FDI has positive impact on

growth in developed economies

Hennes and
Lensink (2003)

FDI has positive effect on growth

in economies with high level of
developed financial system

Zhang (2003)

FDI seems to promote economic

growth

Alfaro, Chanda,
Kalemli-Ozcan
and Sayek (2004)

FDI has significantly positive

effect on growth in economies
with well developed financial
markets

Akut and Sayek

(2005)

FDI has positive impact on

growth in manufacturing sector,
but not for service sector

Blonigen and
Wang (2005)

FDI has positive impact on

growth in less developed
economies with enough level of
education, but not in developed
economies

Adeolu (2007)

FDI has positive impact on

growth, high level of human
capital and trade openness will
help FDI contribute more growth

TABLE 5
Estimation of Impacts of FDI and Complementary Factors on Growth in
East Asia by Group
High income
Pool

Fixed Effect

LOG(labour)

0.16
(1.10)

0.26
(2.29)

LOG(domestic investment)

0.23
(3.18)

0.39
(3.26)

LOG(FDI)

1.60
(3.45)

1.50
(3.47)

LOG(public expenditure on education)

4.24
(3.07)

3.44
(5.97)

0.57

0.42

LOG(government investment)

(2.31)

(2.57)

LOG(trade openness)

0.71
(3.22)

0.52
(3.73)

LOG(Financial development)

0.16
(3.77)

0.36
(4.32)

LOG(Corruption perception index)

0.68
(3.44)

0.41
(3.68)

inflation rate

-0.17
(-2.49)

-0.29
(-2.00)

dummy 97

-0.09
(-2.46)

-0.10
(-2.50)

0.90
(2.65)

0.92
(3.01)

LOG(FDI)*LOG (government investment)

0.64
(2.28)

0.50
(2.57)

LOG(FDI)*LOG(trade openness)

1.81
(3.24)

2.10
(2.82)

LOG(FDI)*LOG(Financial development)

0.34
(3.20)

0.30
(3.47)

LOG(FDI)*LOG(Corruption Perception Index)

1.61
(1.71)

1.57
(1.58)

Number of observations

54

LOG(FDI)*LOG (public expenditure on

education)

54

Adjusted R-squared

0.96

0.97

Durbin-Watson

1.33

1.61

Middle income
Pool

Fixed Effect

LOG(labour)

0.24
(12.41)

0.85
(6.74)

LOG(domestic investment)

0.28
(11.37)

0.25
(11.94)

LOG(FDI)

0.15
(3.36)

0.39
(4.80)

LOG(public expenditure on education)

0.90
(4.74)

0.38
(3.78)

LOG(government investment)

0.26
(1.32)

0.18
(1.28)

LOG(trade openness)

0.73
(3.30)

0.75
(3.92)

LOG(Financial development)

0.06
(2.16)

0.93
(2.90)

LOG(Corruption perception index)

0.44
(3.88)

0.32
(3.57)

inflation rate

-0.21
(-2.06)

-0.18
(-2.61)

dummy 97

-0.69
(-2.44)

-0.40
(-2.10)

0.38
(1.78)

0.71
(1.47)

LOG(FDI)*LOG (government investment)

0.33
(1.42)

0.32
(1.93)

LOG(FDI)*LOG(trade openness)

7.61
(3.21)

7.59
(3.50)

LOG(FDI)*LOG(Financial development)

1.36
(2.89)

1.24
(3.51)

LOG(FDI)*LOG(Corruption Perception Index)

0.60
(4.20)

0.44
(3.27)

Number of observations

90

90

LOG(FDI)*LOG (public expenditure on

education)

Adjusted R-squared

0.94

0.96

Durbin-Watson

0.97

1.11

Low income
Pool

Fixed Effect

LOG(labour)

1.30
(8.86)

1.73
(3.40)

LOG(domestic investment)

0.14
(2.34)

0.16
(3.16)

LOG(FDI)

0.56
(0.98)

0.37
(0.83)

LOG(public expenditure on education)

0.10
(2.51)

0.58
(2.34)

LOG(government investment)

0.69
(2.56)

0.45
(2.07)

LOG(trade openness)

0.28
(1.71)

0.10
(1.41)

LOG(Financial development)

2.82
(1.14)

2.63
(1.23)

LOG(Corruption perception index)

0.19
(1.27)

0.15
(1.38)

inflation rate

-0.40
(-0.86)

-0.14
(-0.36)

dummy 97

-0.46
(-1.14)

-0.48
(-0.97)

0.85
(0.64)

0.71
(0.51)

0.17

0.17

LOG(FDI)*LOG (public expenditure on

education)

LOG(FDI)*LOG (government investment)

(1.24)

(1.76)

LOG(FDI)*LOG(trade openness)

0.87
(2.53)

0.59
(2.24)

LOG(FDI)*LOG(Financial development)

0.35
(1.49)

0.31
(1.84)

LOG(FDI)*LOG(Corruption Perception Index)

0.55
(1.66)

0.48
(1.62)

Number of observations

64

64

Adjusted R-squared

0.92

0.94

Durbin-Watson

1.15

1.11
All economies

Pool

Fixed Effect

LOG(labour)

0.18
(6.91)

0.12
(4.57)

LOG(domestic investment)

0.25
(5.60)

0.11
(4.46)

LOG(FDI)

0.46
(7.78)

0.59
(9.15)

LOG(public expenditure on education)

0.40
(2.00)

0.41
(2.33)

LOG(government investment)

0.59
(2.86)

0.27
(4.60)

LOG(trade openness)

0.34
(3.23)

0.15
(4.81)

LOG(Financial development)

0.36
(5.56)

0.23
(3.31)

LOG(Corruption perception index)

0.50
(6.95)

0.14
(8.11)

inflation rate

-0.53
(-5.59)

-0.14
(-2.07)

dummy 97

-0.18
(-8.46)

-0.21
(-9.20)

0.41
(9.36)

0.12
(5.65)

LOG(FDI)*LOG (government investment)

0.48
(8.60)

0.86
(3.63)

LOG(FDI)*LOG(trade openness)

0.54
(3.64)

0.18
(3.77)

LOG(FDI)*LOG(Financial development)

0.45
(7.72)

0.30
(7.31)

LOG(FDI)*LOG(Corruption Perception Index)

0.14
(7.35)

0.15
(8.31)

LOG(FDI)*LOG (public expenditure on

education)

Number of observations
Adjusted R-squared
Durbin-Watson

224
0.92
17.1

224
0.92
1.98

Kotrajaras, Polpat^Tubtimtong, Bangorn^Wiboonchutikula, Paitoon

Full Text: COPYRIGHT 2011 Institute of Southeast Asian Studies (ISEAS).
http://bookshop.iseas.edu.sg/
Source Citation:
Kotrajaras, Polpat, Bangorn Tubtimtong, and Paitoon Wiboonchutikula. "Does FDI enhance economic
growth? New evidence from East Asia." ASEAN Economic Bulletin 28.2 (2011): 183+. Business Insights:
Global. Web. 20 Oct. 2011.
Document URL
http://bi.galegroup.com/global/article/GALE|A268215035
Document Number:
GALE|A268215035