Foreign capital flows and economic growth: A cross country panel analysis
Remittances, foreign direct investment (FDI), official development assistance (ODA) and long-term net private foreign currency loans (NPF) have dynamic impact to change a country’s economic growth. These forms of inward foreigncapital have a direct impact on a country’s economic growth and development process, but their ability to change macroeconomics and trade generate concern over the ability to sustain long-term economic growth. The impact levels of remittance to economic growth, selected macroeconomic factors and trade balances are large and dynamic compared to FDI, ODA and NPF. However, comparing ODA with FDI, the former significantly reduces economic growth as well as reduces macroeconomic stability. Meanwhile, long-term private foreign currency loans (NPF) have had significantly positive impacts on economic growth and macroeconomic factors. Inward foreign capital can become a significant contributor to economic growth in developing countries, but it is dependent on institutional support and strong macroeconomic policy (fiscal and monetary) development. The results in this study are based on robust regression estimations including fixed, random, pooled OLS and IV models.
- School of Management