Inward FDI, Outward FDI and Domestic Investment: Evidence from Asian Economies Using Panel Data Analysis

Abstract

This study measures effects of FDI inflows and outflows on domestic investment in Asian economies using panel data analysis. Our estimates using system-Generalized Method of Moments (GMM) suggest that FDI inflows (IFDI) have positive and significant effects on domestic investment but outward FDI (OFDI) is negatively associated with domestic investment. From 2004-2014, OFDI and IFDI had significant long-term effects on domestic investment among the Asian economies. Our system Generalized Method of Moments (GMM) model results show that one dollar increase in FDI inflows leads to increase domestic investment by 0.3081 dollars. Our system Generalized Method of Moments (GMM) model results show that one dollar increase in FDI outflows leads to decrease domestic investment by 0.2704 dollars. Our result findings are robust with different econometric techniques measuring effects of inward FDI and outward FDI on domestic investment among Asian economies.

Keywords: FDI inflows; FDI outflows; Domestic investment; Endogeneity; Panel Data

JEL Classification numbers: C23; F21; F22; F23