C.K. Choong

Foreign Direct Investment, Economic Growth, and Financial Sector Development: A Comparative Analysis

In this study, patterns of foreign direct investment (FDI) and economic growth are investigated among select developed and East Asian countries. In particular, it aims to investigate the development of the domestic financial sector in transferring the technological diffusion embodied in FDI inflows to the chosen countries. It is evident in all the countries under study that both FDI and economic growth are not cointegrated by themselves directly, but rather through their dynamic interaction with the development of the domestic financial sector. Our results prove that the presence of FDI inflows creates a positive technological diffusion in the long run only if the evolution of the domestic financial system has achieved a certain minimum level. From the short-run causality models, the striking similarity in the behaviour of FDI on economic growth across countries suggests the possibility of common financial sector development in different countries, despite differences in their fiscal policy, industrial development, and other domestic determinants.

Exchange Rate Volatility and Exports for Selected East Asian Countries: Evidence from Error Correction Model

This paper examines the relationship between exchange rate volatility and exports of the five selected East Asian economies. A measure of the quantitative proxy of the exchange rate risk is constructed, focusing on the role of moving-average in smoothing the persistence of the risk measure. Vector autoregressive (VAR) model, error correction modelling (ECM), and variance decomposition (VD) are applied to characterize the joint dynamics of variables in both the short and long run. The Johansen results indicate a stable long-run relation between exports and exchange rate. Results show that a great fluctuation of exchange rate volatility has significantly impacted the volume of exports for the economies concerned. To this end, the forecast error VD shows that the innovations of exchange rate volatility have minor impact on export patterns in the study.

Foreign Direct Investment And Economic Growth In Malaysia: The Role Of Domestic Financial Sector

This study aims to incorporate the role of domestic financial system in transferring the technological diffusion embodied in FDI inflows on the Malaysian economy from 1970–2001. Applying bound test, or unrestricted error correction model (UECM) proposed by Pesaran et al. (2001), the presence of FDI inflows creates a positive technological diffusion in both short- and long-run if the evolution of domestic financial system has achieved a certain minimum level. This implies that the improvement of technology level in Malaysia in the long run is due to the spillover efficiency effects from FDI. Hence, the study suggests that FDI tends to be more likely to enhance economic growth more efficiently when a recipient country has a well-developed and well-functioning financial sector.

The Determinants of Foreign Direct Investment in Malaysia: A Revisit

Abstract The paper re-examines the determinants of foreign direct investment (FDI) in Malaysia, for the period 1970–2006. The cointegration results show that market size of both Malaysia and China have major, and a statistically significant impact, on FDI inflow to Malaysia. The results seem to support the argument that foreign investors tend to be more attracted to the country with a higher growth rate of gross domestic product (GDP) because it indicates a larger potential demand for their products. In addition, the results also demonstrate that openness level of the country has a positive and statistically significant effect on FDI inflow, which supports the hypothesis that FDI can be attracted to a country with more liberalized economic reforms. Finally, the results show that literacy rate (human capital development) has significant positive effect on FDI inflow. The finding suggests the need for labor force expansion and education policy to raise the stock of human capital in the country. Using Granger causality test, we also find that there exist unidirectional causality from real GDP of both Malaysia and China, degree of openness and literacy rate to FDI inflow.

Aid and Economic Growth in Pacific Island Countries: An Empirical Study of Aid Effectiveness in Fiji

Pacific island countries (PICs), ever since their independence during the second half of the last century, have been among the world’s top ten recipients of official development assistance (ODA) on a per capita basis. Until the mid 1990s, most of them were receiving aid from their erstwhile colonial masters for budgetary support. With the introduction of reforms in ODA delivery in the late 1990s with focus on program and project-tied aid, it was expected that aid would directly facilitate creation of much-needed growth enhancing infrastructures, physical as well as social, since domestic savings were found to be insufficient to finance them. However, continued stagnation in some PICs and deterioration in some others have been causing concerns. This paper seeks to examine the effectiveness of aid by undertaking a case study of Fiji, which has a longer time series data needed for econometric investigation. Based on the study’s findings, the paper lists some policy conclusions relevant to the region.

Foreign direct investment, financial development, and economic growth: the case of Malaysia

This paper presents, within an endogenous growth model, an analysis of the interaction between foreign direct investment (FDI) and financial development in promoting Malaysias economic growth. Using a co-integration framework, this study estimates a dynamic endogenous growth function that includes the impact of FDI and financial sector evolution as well as some locational determinants for the sample period spanning from 1970 to 2001. The empirical evidence suggests that foreign direct investment, labour, investment, and government expenditure play a pivotal role in local economic prosperity. More importantly, it is found that the interaction between FDI and financial development exerts a significant effect on the growth performance of Malaysia. Perhaps the strongest result to emerge from our study is the significant role played by FDI–finance interaction in the growth process.

Role of remittances in small Pacific Island economies: an empirical study of Fiji

In the context of the ongoing current global economic downturn, mobilisation of foreign exchange earnings has assumed considerable importance. By adopting an augmented Solow model approach, this paper examines the long-run growth effects of Fijis inward remittances during a three-decade period (1979-2008). The study finds that remittances have had a positive and significant effect on economic activities. This paper also discusses some important policy implications arising out of the study findings.

Role of Remittances in Economic Growth in Pacific Island Countries: A Study of Samoa

Remittances have been a great support to Pacific island countries (PICs). Aside from providing additions to domestic savings and, hence, real resources, they have been one of the major sources of foreign exchange earnings. In the context of falling exports and limited options to diversify their exports, inward remittances have assumed greater importance. This paper examines the nexus between growth and remittances in Samoa.

Role of remittances in India’s economic growth

India has been among the top ten remittance recipient countries in the world since the 1970s. In the context of the ongoing worldwide recession and uncertain export prospects, mobilisation of foreign exchange earnings has assumed greater importance. Given the intensification of financial sector development together with relatively stable capital inflows (FDI and ODA) and the efforts towards formalising the channels of remittance inflows, we find that remittances and the interaction between remittances and financial sector development have had a positive and significant effect on growth over the last four decades (1970–2009). In the light of these findings, it is proposed that the proactive policy measures in India should continue for encouraging remittance inflows for long-term growth and development.

Foreign direct investment in the South Pacific Island Countries: a case study of Fiji

The South Pacific region has been lagging behind in growth in comparison to similarly placed island countries in the Caribbean and Indian Ocean regions. This paper, which undertakes an empirical study, establishes that the rate of growth, market size, openness policy and real exchange rate are crucial determinants of foreign direct investment (FDI) inflows into Fiji. Further, the Granger noncausality test based on Vector Error Correction Model shows that there is a bi-directional causal linkage between FDI and economic growth. The conclusion is that Fiji should adopt an appropriate policy environment for encouraging the growth inducing FDI inflows.