Close window

THE RELATIONSHIP BETWEEN U.S. DIRECT INVESTMENTS AND ECONOMIC GROWTH IN SOME SELECTED ASIAN COUNTRIES

Kingsley Nwala

Elizabeth City State University, USA

ABSTRACT

The paper empirically investigates the relationship between U.S. foreign direct investments (FDI) and economic growth in the ASEAN4 countries of Malaysia, Indonesia, Thailand, and the Philippines. The study uses annual panel data covering 1990-2005. An augmented Solow production frontier that makes output a function of capital stock, labor, human capital, and productivity is estimated using both OLS and Seemingly unrelated regression (SUR) techniques. The results show a negative relationship exists between the ASEAN4 countries’ economic growth and the US foreign direct Investments. FDI can be growth enhancing, if it complements domestic investment; otherwise, it crowds it out, and decreases domestic savings thereby resulting to negative economic growth. The presence of FDI inflows does not necessarily improve technology level of host countries especially developing economies through positive spillovers efficiency. A recipient country will only enjoy the positive externalities embodied in FDI only when there are efficiency and development of domestic financial sector and functioning infrastructures at a certain minimum level.

Keywords: FDI, ASEAN4-ivestment areas, economic growth, SUR, financial sector

JEL Classification: F016, F21, F23