Exploring the pathways accounting: Foreign direct investment as a catalyst for idiosyncratic risk, sectoral GDP, economic activity, and economic growth
Vol 8, Issue 7, 2024
VIEWS - 1545 (Abstract)
Abstract
This study examines the interaction between foreign direct investment (FDI), idiosyncratic risk, sectoral GDP, economic activity, and economic growth in ASEAN countries using structural equation modeling (SEM) performed using AMOS software. The analysis uses data from the ASEAN Statistics Database 2023 to distinguish the significant direct and indirect impacts of FDI on idiosyncratic risks, sectoral GDP, economic activity and aggregate economic growth can. ASEAN, which includes ten Southeast Asian countries, has experienced rapid economic growth and increasing integration in recent decades, making it an interesting area to study these relationships. The study covers a comprehensive period to capture trends and differences among ASEAN member states. Applying SEM with AMOS allows a detailed examination of complex relationships between important economic variables. The results show a clear link between FDI inflows, idiosyncratic risks, industry GDP performance, economic activity, and overall economic growth. More specifically, FDI inflows have a notable direct influence on idiosyncratic risks, which then impact GDP growth by sector, and the level of economic activity and ultimately contribute to economic growth trends. economy more broadly in ASEAN countries. These findings highlight the importance of understanding and effectively managing the dynamics between FDI and various economic indicators to promote sustainable economic development across ASEAN. This information can inform policymakers, investors, and stakeholders in developing targeted strategies and policies that maximize the benefits of FDI while minimizing related risks to promote strong and inclusive economic growth in the region. This study highlights the multifaceted relationships in the ASEAN economic context, emphasizing the need for strategic interventions and policy frameworks to exploit the potential of foreign investment directed at ASEAN, to the Sustainable Development Goals and long-term economic prosperity in the region.
Keywords
Full Text:
PDFReferences
- Abbasi, K. R., Hussain, K., Haddad, A. M., et al. (2022). The role of Financial Development and Technological Innovation towards Sustainable Development in Pakistan: Fresh insights from consumption and territory-based emissions. Technological Forecasting and Social Change, 176, 121444. https://doi.org/10.1016/j.techfore.2021.121444
- Alsagr, N. (2024). Revisiting the natural resources rent and financial development nexus: Does geopolitical risk and corruption matter? Resources Policy, 89, 104638. https://doi.org/10.1016/j.resourpol.2024.104638
- Asongu, S. A., & Odhiambo, N. M. (2020). Foreign direct investment, information technology and economic growth dynamics in Sub-Saharan Africa. Telecommunications Policy, 44(1), 101838. https://doi.org/10.1016/j.telpol.2019.101838
- Ayana, I. D., Demissie, W. M., & Sore, A. G. (2024). On the government revenue on economic growth of Sub-Saharan Africa: Does institutional quality matter? Heliyon, 10(2), e24319. https://doi.org/10.1016/j.heliyon.2024.e24319
- Barberis, N., & Huang, M. (2009). Preferences with frames: A new utility specification that allows for the framing of risks. Journal of Economic Dynamics and Control, 33(8), 1555–1576. https://doi.org/10.1016/j.jedc.2009.01.009
- Bayraktar, Y., Ozyilmaz, A., Toprak, M., et al. (2023). The role of institutional quality in the relationship between financial development and economic growth: Emerging markets and middle-income economies. Borsa Istanbul Review, 23(6), 1303–1321. https://doi.org/10.1016/j.bir.2023.10.002
- Bhujabal, P., Sethi, N., & Padhan, P. C. (2024). Effect of institutional quality on FDI inflows in South Asian and Southeast Asian countries. Heliyon, 10(5), e27060. https://doi.org/10.1016/j.heliyon.2024.e27060
- Binder, M., Cheung, Y. L., Georgiadis, G., et al. (2024). Institutions, international financial integration, and output growth. Journal of Economic Behavior & Organization, 219, 450–472. https://doi.org/10.1016/j.jebo.2024.01.015
- Borensztein, E., De Gregorio, J., & Lee, J. W. (1998). How does foreign direct investment affect economic growth? Journal of International Economics, 45(1), 115–135. https://doi.org/10.1016/S0022-1996(97)00033-0
- Chattopadhyay, A. K., Rakshit, D., Chatterjee, P., et al. (2022). Trends and Determinants of FDI with Implications of COVID-19 in BRICS. Global Journal of Emerging Market Economies, 14(1), 43–59. https://doi.org/10.1177/09749101211067091
- Cifuentes-Faura, J., Simionescu, M., & Gavurova, B. (2022). Determinants of local government deficit: evidence from Spanish municipalities. Heliyon, 8(12), e12393. https://doi.org/10.1016/j.heliyon.2022.e12393
- Clemens, C., & Heinemann, M. (2015). Endogenous growth and wealth inequality under incomplete markets and idiosyncratic risk. Journal of Macroeconomics, 45, 300–317. https://doi.org/10.1016/j.jmacro.2015.05.008
- Demetriades, P., & Hook Law, S. (2006). Finance, institutions, and economic development. International Journal of Finance & Economics, 11(3), 245–260. https://doi.org/10.1002/ijfe.296
- Doytch, N., Ashraf, A., & Nguyen, C. P. (2024). Foreign Direct Investment and Forest Land: A Sectoral Investigation. Environmental and Sustainability Indicators, 22, 100353. https://doi.org/10.1016/j.indic.2024.100353
- Du, J., Yang, X., Long, D., et al. (2024). Modeling the influence of natural resources and social globalization on load capacity factor: New insights from the ASEAN countries. Resources Policy, 91, 104816. https://doi.org/10.1016/j.resourpol.2024.104816
- Ferreira, M. A., Laux, P. A. (2007). Corporate Governance, Idiosyncratic Risk, and Information Flow. The Journal of Finance, 62(2), 951–989. https://doi.org/10.1111/j.1540-6261.2007.01228.x
- Gu, G. W., & Hale, G. (2023). Climate risks and FDI. Journal of International Economics, 146, 103731. https://doi.org/10.1016/j.jinteco.2023.103731
- Gupta, B. B., Gaurav, A., Panigrahi, P. K., et al. (2023). Analysis of artificial intelligence-based technologies and approaches to sustainable entrepreneurship. Technological Forecasting and Social Change, 186, 122152. https://doi.org/10.1016/j.techfore.2022.122152
- Helpman, E., Melitz, M. J., & Yeaple, S. R. (2004). Export Versus FDI with Heterogeneous Firms. American Economic Review, 94(1), 300–316. https://doi.org/10.1257/000282804322970814
- Huang, Y., & Luk, P. (2020). Measuring economic policy uncertainty in China. China Economic Review, 59, 101367. https://doi.org/10.1016/j.chieco.2019.101367
- Iršová, Z., & Havránek, T. (2013). Determinants of Horizontal Spillovers from FDI: Evidence from a Large Meta-Analysis. World Development, 42, 1–15. https://doi.org/10.1016/j.worlddev.2012.07.001
- Iwasaki, I., & Tokunaga, M. (2016). Technology transfer and spillovers from FDI in transition economies: A meta-analysis. Journal of Comparative Economics, 44(4), 1086–1114. https://doi.org/10.1016/j.jce.2016.10.005
- Kryzanowski, L., & Mohsni, S. (2013). Growth of aggregate corporate earnings and cash-flows: Persistence and determinants. International Review of Economics & Finance, 25, 13–23. https://doi.org/10.1016/j.iref.2012.05.003
- Kumari, K., & Ramachandran, R. (2024). The never-ending debate: Does FDI promote institutional change? Evidence from India and partner countries. Journal of Policy Modeling, 46(2), 432–447. https://doi.org/10.1016/j.jpolmod.2023.10.005
- Lang, C., Xu, D., Corbet, S., et al. (2024). Global financial risk and market connectedness: An empirical analysis of COVOL and major financial markets. International Review of Financial Analysis, 93, 103152. https://doi.org/10.1016/j.irfa.2024.103152
- Messis, P., & Zapranis, A. (2014). Herding towards higher moment CAPM, the contagion of herding and macroeconomic shocks: Evidence from five major developed markets. Journal of Behavioral and Experimental Finance, 4, 1–13. https://doi.org/10.1016/j.jbef.2014.09.002
- Nahar, S. (2024). Modeling the effects of artificial intelligence (AI)-based innovation on sustainable development goals (SDGs): Applying a system dynamics perspective in a cross-country setting. Technological Forecasting and Social Change, 201, 123203. https://doi.org/10.1016/j.techfore.2023.123203
- Nam, H.-J., Bang, J., & Ryu, D. (2024). Nonlinear effects of financial openness on financial development in ASEAN. Journal of Multinational Financial Management, 73, 100846. https://doi.org/10.1016/j.mulfin.2024.100846
- Narayan, P. K., Rath, B. N., & Syarifuddin, F. (2022). Understanding the role of trade agreements in Indonesia’s FDI. Journal of Asian Economics, 82, 101532. https://doi.org/10.1016/j.asieco.2022.101532
- Ranjbari, M., Shams Esfandabadi, Z., Zanetti, M. C., et al. (2021). Three pillars of sustainability in the wake of COVID-19: A systematic review and future research agenda for sustainable development. Journal of Cleaner Production, 297, 126660. https://doi.org/10.1016/j.jclepro.2021.126660
- Saleh, E. A. (2023). The effects of economic and financial crises on FDI: A literature review. Journal of Business Research, 161, 113830. https://doi.org/10.1016/j.jbusres.2023.113830
- Samargandi, N., Fidrmuc, J., & Ghosh, S. (2015). Is the Relationship Between Financial Development and Economic Growth Monotonic? Evidence from a Sample of Middle-Income Countries. World Development, 68, 66–81. https://doi.org/10.1016/j.worlddev.2014.11.010
- Saunders, H. D. (2014). Toward a neoclassical theory of sustainable consumption: Eight golden age propositions. Ecological Economics, 105, 220–232. https://doi.org/10.1016/j.ecolecon.2014.06.011
- Shinwari, R., Wang, Y., Gozgor, G., et al. (2024). Does FDI affect energy consumption in the Belt and road initiative economies? The role of green technologies. Energy Economics, 132, 107409. https://doi.org/10.1016/j.eneco.2024.107409
- Slimani, S., Omri, A., & Abbassi, A. (2024). International capital flows and sustainable development goals: The role of governance and ICT diffusion. Socio-Economic Planning Sciences, 93, 101882. https://doi.org/10.1016/j.seps.2024.101882
- Song, X., & Hou, W. (2024). Mineral resources and growth nexus in ASEAN countries: What role do trade diversification, ICT, and financial inclusion play in the resource curse spectrum? Resources Policy, 91, 104847. https://doi.org/10.1016/j.resourpol.2024.104847
- Tetteh, B., & Ntsiful, E. (2023). A comparative analysis of the performances of macroeconomic indicators during the Global Financial Crisis, COVID-19 Pandemic, and the Russia-Ukraine War: The Ghanaian case. Research in Globalization, 7, 100174. https://doi.org/10.1016/j.resglo.2023.100174
- The Asean Secretariat. (2023). ASEAN-Statistical-Yearbook-2023. The Asean Secretariat.
- Zhang, W., & Wang, H. (2021). Entrepreneurial decisions with idiosyncratic risk and unknown profitability. Economic Modelling, 103, 105611. https://doi.org/10.1016/j.econmod.2021.105611
- Zhou, C. (2020). The effects of outward FDI and export on firm productivity in emerging markets: Evidence from the matching approach. Economics Letters, 195, 109462. https://doi.org/10.1016/j.econlet.2020.109462
DOI: https://doi.org/10.24294/jipd.v8i7.5812
Refbacks
- There are currently no refbacks.
Copyright (c) 2024 Marselinus Asri, Lita Limpo
License URL: https://creativecommons.org/licenses/by/4.0/
This site is licensed under a Creative Commons Attribution 4.0 International License.