Short-term and long-term cointegration analysis of foreign direct investment and value added generation in the manufacturing industry

Marcelo Leon, María de la O. Barroso Gonzalez, Hector Florez

Article ID: 7001
Vol 8, Issue 11, 2024

VIEWS - 24 (Abstract) 9 (PDF)

Abstract


The contraction of manufacturing economic activity in Latin American countries has been affected by the health crisis in the last few years. This phenomenon has negatively impacted the Latin American countries’ economies. In order to evaluate the impact of the manufacturing economy, this research integrates the impact of Foreign Direct Investment (FDI) on the growth of the Ecuadorian manufacturing sector, from 1981 to 2019, considering the role of the state through public spending using cointegration. The results are not consistent considering the empirical framework used; thus, FDI has a negative and significant influence on the manufacturing sector. Also, the manufacturing sector has a strong relationship with FDI in the short run and a less significant one in the long run. The results presented in this research suggest promoting domestic and FDI in the manufacturing sector, not only towards overexploited and monopolized sectors such as mining and telecommunications.


Keywords


value added; manufacturing sector; foreign direct investment; cointegration; innovation

Full Text:

PDF


References


Agu, O. C., & Okoli, T. T. (2015). Foreign Direct Investment Flows and Manufacturing Sector Performance in Nigeria. International Journal of Economics, Trade and Management, 3(7).

Akaike, H. (1974). A new look at the statistical model identification. IEEE Transactions on Automatic Control, 19(6), 716–723. https://doi.org/10.1109/tac.1974.1100705

Alfaro, L. (2003). Foreign Direct Investment and Growth: Does the Sector Matter? Harvard Business School.

Banco Central del Ecuador. (2020). Macroeconomic Statistics: Short-term Presentation (Spanish). Available online: https://contenido.bce.fin.ec/documentos/Estadisticas/SectorReal/Previsiones/IndCoyuntura/EstMacro042020.pdf (accessed on 2 June 2023).

Barbero, M. (2013). Impact of foreign direct investment in argentine industry in the 1920s. Corporate strategies and their effects on the local productive sector. Journal of Chemical Information and Modeling, 53(9), 1689–1699.

Buitrago, M., & Luz, M. (2015). Effects of foreign direct investment on economic growth in Colombia: Empirical evidence 2000-2010. Revista Apuntes Del CENES.

Camino, S., Bermudez, N., Suarez, D., et al. (2018), Manufacturing Industry Overview in Ecuador, Period 2013-2017. Estudios Sectoriales.

Chiatchoua, C., Castillo, O. N., & Santibáñez, A. L. V. (2016). Foreign Direct Investment and Employment in Mexico: Sectoral Analysis (Spanish). Economía Informa, 398, 40–59. https://doi.org/10.1016/j.ecin.2016.04.004

Chuang, Y., & Lin, C. (1999). Foreign direct investment, R&D and spillover efficiency: Evidence from Taiwan’s manufacturing firms. Journal of Development Studies, 35(4), 117–137. https://doi.org/10.1080/00220389908422583

Dickey, D. A., & Fuller, W. A. (1979). Distribution of the Estimators for Autoregressive Time Series with a Unit Root. Journal of the American Statistical Association, 74(366a), 427–431. https://doi.org/10.1080/01621459.1979.10482531

Fernandes, A. M., & Paunov, C. (2012). Foreign direct investment in services and manufacturing productivity: Evidence for Chile. Journal of Development Economics, 97(2), 305–321. https://doi.org/10.1016/j.jdeveco.2011.02.004

Globerman, S. (1979). Foreign Direct Investment and “Spillover” Efficiency Benefits in Canadian Manufacturing Industries. The Canadian Journal of Economics, 12(1), 42. https://doi.org/10.2307/134570

González, G., & Xóchitl, B. (2016). Foreign direct investment in mining in Mexico: the case of gold. Economic Analysis, 77, 85–113.

Herranz, A. Á., Barraza, J. S. E., & Legato, A. M. (2009). Foreign direct investment and economic growth in Latin America, Información Tecnológica, 20(6), 115–124.

Jeon, Y. D. (1992). The determinants of Korean foreign direct investment in manufacturing industries. Weltwirtschaftliches Archiv, 128, 527–542.

Leon, M., Cornejo, G., Calderón, M., et al. (2022). Effect of deforestation on climate change: A co-integration and causality approach with time series. Sustainability, 14(18), 11303.

Martínez, J. M., & Hernández, R. A. (2012). Foreign Direct Investment in Costa Rica: Determinants and Effects on National and Regional Development. Aportes para el Análisis del Desarrollo Humano Sostenible.

Mendoza, E. J. (2011). The impact of foreign direct investment on manufacturing growth in Mexico (Spanish). Problemas Del Desarrollo. Revista Latinoamericana de Economía, 42(167). https://doi.org/10.22201/iiec.20078951e.2011.167.27720

Ministerio de Producción Comercio Exterior Inversiones y Pesca. (2020). COVID-19 En El Ecuador: Impacto Económico y Perspectivas. Available online: https://www.produccion.gob.ec/wp-content/uploads/2020/05/Boletin-Impacto-Covid-19.pdf (accessed on 2 June 2023).

Morales, J. (2010). Foreign direct investment and development in Latin America. Journal Problemas Del Desarrollo, 41(163), 141–156.

Morante, A., del Pilar Villamil, M., & Florez, H. (2017). Framework for supporting the creation of marketing strategies. International Information Institute (Tokyo). Information, 20(10A), 7371-7378.

Novales, A. (2017). Autoregressive Vector Models (VAR). Available online: https://www.ucm.es/data/cont/media/www/pag-41459/VAR.pdf

Pérez, O. (2015). The role of foreign direct investment in economic development. The Cuban experience, Centro de Estudios de La Economía Cubana.

Pesaran, M., & Shin, Y. (1995). Long-Run Structural Modelling. Cambridge Working Papers in Economics 9419.

Potter, J., Moore, B., & Spires, R. (2002). The wider effects of foreign direct investment in manufacturing on UK industry. Journal of Economic Geography, 2(3), 279–310.

Rivera, B., Leon, M., Cornejo, G., et al. (2023). Analysis of the effect of human capital, institutionality and globalization on economic complexity: Comparison between latin america and countries with greater economic diversification. Economies, 11(8), 204.

Ruane, F., & Uǧur, A. (2005). Foreign direct investment and productivity spillovers in irish manufacturing industry: Evidence from plant level panel data. International Journal of the Economics of Business, 12(1), 53–66.

Santiago, F., & Vargas, F. (2020). Latin America: How to revive manufacturing in times of COVID-19? United Nations Industrial Development Organization.

Suyanto, Salim, R., & Bloch, H. (2014). Which firms benefit from foreign direct investment? Empirical evidence from Indonesian manufacturing. Journal of Asian Economics, 33, 16–29.

Torres, V. H., Polanco, M., & Tinoco, M. A. (2017). Dynamic of foreign direct investment in the states of Mexico: An analysis of Markov' s spatial chains. Contaduría y Administración, 62(1), 163–183.

World Bank. (2020). World Development Indicators (WDI). Available online: https://databank.worldbank.org/source/world-development-indicators (accessed on 12 June 2023).




DOI: https://doi.org/10.24294/jipd.v8i11.7001

Refbacks

  • There are currently no refbacks.


Copyright (c) 2024 Marcelo Leon, María de la O. Barroso Gonzalez, Hector Florez

License URL: https://creativecommons.org/licenses/by/4.0/

This site is licensed under a Creative Commons Attribution 4.0 International License.