ABSORPTIVE CAPACITY AND FOREIGN DIRECT INVESTMENT: EVIDENCE FROM SOUTH ASIAN COUNTRIES
Keywords:
FDI, Human capital., nfrastructure, infrastructure, institutions, trade openness, technology
Abstract
The absorptive capacity (AC) is very important determinant of foreign direct investment (FDI) more effective for economic growth and development. There are numerous indicators of absorptive capacity such as human capital, technology, infrastructure, institutional quality, GDP per capita, and trade openness. This study determines the effect of absorptive capacity on FDI in South Asian countries over the period 1984-2017 using System Generalized Method of Moment (GMM). The study reveals that absorptive indicators such as trade openness, infrastructure, institutional quality, human capital, gross domestic product per capita, and technology have increasing impacts on foreign direct investment in South Asian countries. However human capital is the more effective determinant of FDI compared to other determinants. It is necessary to increase human capital, free trade, infrastructure, technological innovations, and institutional quality to effectively absorb the benefit and spillover effects of FDI which boosts economic growth and development.References
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Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics 68, 29-51.
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Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1),115-143.
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Cleeve, A., Debrah, Y., & Yiheyis, Z. (2015). Human Capital and FDI Inflow: An Assessment of the African Case. World Development,74(C), 1-14.
Culem, C. G. (1988). The Locational Determinants of Direct Investment among Industrialized Countries. European Economic Review,32(4), 885-904.
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Dornbusch, R., Fischer S., & Startz, R. (2008). MakroEkonomi. Mirazudin, R.I. (Penerjemah). Jakarta: PT Media Global Edukasi.
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Sawkut, R., Seetanah, B., Ramessur-Seenarain, T., & Sannassee, V.(2009). Determinants of FDI: Lessons from the African economies. Journal of Applied Business and Economics, 9(1), 1–16.
Walsh, J. P., & Yu, J. (2010). Determinants of foreign direct investment: a sectoral and institutional approach. IMF Working Papers. 1-27.
Wheeler, D. & Mody, A. (1992). International investment location decisions: the case of U.S. firms. Journal of International Economics, 33, 57–76.
Aizenman, J., & Noy, I. (2005). FDI and trade: Two-way linkages? National Bureau of Economic Research Working Paper11403. Cambridge, MA: National Bureau of Economic Research.
Aleksynska, M., Gaisford, J., & Kerr, W. (2003). Foreign Direct Investment and Growth in Transition Economies. MPRA Paper. University Library of Munich, Germany.
Alfaro, L. (2003). Foreign Direct Investment and Growth: Does the Sector Matter? Harvard Business School, 1-12.
Alfaro, L. (2004). FDI and economic growth: The role of local financial markets. Journal of International Economics, 64, 89-112.
Alharthi, M. (2018). Determinants of Foreign Direct Investment in Gulf Cooperation Council (GCC) Region. 10.20472/EFC.2018.010.002.
Arellano, M. & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economic Studies, 58(2), 277-297.
Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics 68, 29-51.
Asiedu, E., & Lien, D. (2011). Democracy, foreign direct investment and natural resources. Journal of International Economics, 84(1), 99-111.
Asiedu, E. (2002). On the Determinants of Foreign Direct Investment to Developing Countries: Is Africa Different? World Development,30(1), 107–119.
Bission, O. (2009). Can better institutions attract more foreign direct investment(FDI)? Evidence from developing countries. International Research Journal of Finance and Economics, 82, 142-158.
Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1),115-143.
Borensztein, E., Gregorio, J., D., & Lee, J. W. (1998). How does foreign direct investment effect economic growth. Journal of International Economics, 45(1), 115 –135.
Busse, M. & Hefeker, C. (2007). Political risk, institutions and foreign direct investment. European Journal of Political Economy, 23(2),397-415.
Cleeve, A., Debrah, Y., & Yiheyis, Z. (2015). Human Capital and FDI Inflow: An Assessment of the African Case. World Development,74(C), 1-14.
Culem, C. G. (1988). The Locational Determinants of Direct Investment among Industrialized Countries. European Economic Review,32(4), 885-904.
Demirhan, E., & Masca, M. (2008). Determinants of foreign direct investment flows to developing countries: a cross-sectional analysis. Prague Economic Papers, Prague University of Economics and Business, 4, 356-369.
Dornbusch, R., Fischer S., & Startz, R. (2008). MakroEkonomi. Mirazudin, R.I. (Penerjemah). Jakarta: PT Media Global Edukasi.
Dunning, J. H. (1973). The determinants of international production. Oxford Economic Papers 25.
Dunning, J. H. (2009). Location and the multinational Enterprise: An eglected factor, Journal of International Business Studies,40(1), 5-19.
Dunning, J. H. (1988). The Eclectic Paradigm of International Production: A restatement and some possible extensions. Journal of International Business Studies, 19(1), 1-31.
Edwards, S. (1990). Capital Flows, Foreign Direct Investment, and Debt-Equity Swaps in Developing Countries. NBER Working Paper No. 3497.
Gastanaga, V. (1998). Host Country Reforms and FDI Inflows: How Much Difference Do They Make? World Development, 27(7), 1299-1314.
Harms, P. & Ursprung, H. W. (2002). Do civil and political repression really boost foreign direct investments? Economic Enquiry,40(4), 651–663.
Ishida, M. (2012). Attracting FDI: in East Asian countries, in economics reforms with Myanmar: pathways and prospects.In Hank Limand Yashuhiro Yamada (Edited), BRC research report No. 10,Bangkok research center, IDE-JETRO Thailand.
Julio, P., Pinheiro Alves, R., & Tavares, J. (2013). Foreign direct investment and institutional reform: evidence and an application to Portugal. Portuguese Economic Journal, 12(3), 215-250.
Kinoshita, Y., & Lu, C. H. (2006). On the Role of Absorptive Capacity: FDI Matters to Growth. IEAS Working Paper: academic research 06-A006. Institute of Economics, Academia Sinica, Taipei, Taiwan.
Khadaroo, A. J., & Seetanah, B. (2007, November). Transport infrastructure and FDI: Lessons from Sub Saharan African economies. In African Economic Conference (AEC) (15–17).Addis Ababa, Ethiopia.
Kravis, I. B. & Lipsey, R. E. (1982). The Location of Overseas Production and Production for Exports by US Multinational Firms. Journal of International Economics, 12(3-4), 201-223.
Kumar, N. (1994). Determinants of export orientation of foreign product by US multinationals, Journal of International Business. 25(1),141-156.
Li, X. Y. & Liu, X. M. (2005). Foreign Direct Investment and economic growth: An increasingly endogenous relationship. World Development, 33(3), 393-407.
Lugemwa, P. (2014). Foreign direct investment and SME growth: Highlighting the need for absorptive capacity to support linkages between transnational corporations and SMEs in developing countries. Sciences, 2(4), 245-256.
Narula, R., & Marin, A. (2003). FDI spill overs, absorptive capacities and human capital development: evidence from Argentina, Research Memorandum 018, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
Nguyen, H. T., Duysters, G., Patterson, J. H., & Sander, H. (2009). Foreign direct investment absorptive capacity theory, in ‘Proceedings of the 7th International Conference GLOBELICS, Georgia Institute of Technology, Dakar, Senegal’.
Nasir, Z. M., & Hassan, A. (2011). Economic freedom, exchange rates stability and FDI in South Asia. In: Paper presented at 27thannual general meeting and conference of The PSDE, Islamabad:Pakistan Institute of Development Economics (PIDE).
Nunnenkamp, P. (2004). To what extent can foreign direct investment help achieve international development goals? Blackwell Publishers, Oxford, United Kingdom.
Sabir, S., Rafique, A., & Abbas, K. (2019). Institutions and FDI: evidence from developed and developing countries. Financial Innovations,5(1), 1–20.
Sawkut, R., Seetanah, B., Ramessur-Seenarain, T., & Sannassee, V.(2009). Determinants of FDI: Lessons from the African economies. Journal of Applied Business and Economics, 9(1), 1–16.
Walsh, J. P., & Yu, J. (2010). Determinants of foreign direct investment: a sectoral and institutional approach. IMF Working Papers. 1-27.
Wheeler, D. & Mody, A. (1992). International investment location decisions: the case of U.S. firms. Journal of International Economics, 33, 57–76.
Published
2020-07-01
Section
Articles
