Effects of Foreign Direct Investment Inflows on Economic Growth and Human Capital in VISTA Countries
DOI:
https://doi.org/10.22452/IJIE.vol17no4.4Keywords:
Economic growth, Human capital, FDI, VISTA countries, ARDL modelAbstract
This study examines the effect of foreign direct investment (FDI) on the
economic growth and human capital of VISTA (Vietnam, Indonesia, South Africa,
Turkey, and Argentina) countries. Using time series data spanning from 1990 to 2017,
the study employs the autoregressive distributed lag (ARDL) technique to analyse the
short and long-run relationships between the interacting variables. The analysis finds a
long-run relationship between economic growth, FDI, trade openness, capital formation,
primary school enrolment, and inflation over the sampled period. Specifically, FDI drives
the direction of growth of VISTA countries’ economies, where it is positive for Indonesia
but negative for the rest of the countries in the sample. This implies that optimisation of
the benefits of FDI flows is dependent on country-specific and systemic characteristics,
where economies with sophisticated financial structures benefit positively compared to
less sophisticated economies. In addition, the results indicate that FDI has a long-run
positive impact on human capital in most VISTA countries, except for South Africa and
Turkey, while it has shown a short-run negative effect on human capital in Vietnam.
Policy initiatives should be focused on addressing systemic inefficiencies to optimise the
benefits of FDI inflows on economic growth and human capital development.
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