How Foreign Direct Investment, Trade Openness, and Productivity Affect Economic Growth: Evidence From 90 Middle-income Countries

This paper examines the relationship between total factor productivity, trade openness, and foreign direct investment to economic growth in 90 middle-income countries from 1990 to 2020. We employ the Generalized Method of Moments with country and period fixed effects to overcome heteroscedasticity a...

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Bibliographic Details
Published inScientific Papers of the University of Pardubice. Series D, Faculty of Economics and Administration Vol. 30; no. 3
Main Authors Duong, Khoa Dang, Nguyen, Suu Duy, Phan, Thi Thanh-Phuong, Luong, Long
Format Journal Article
LanguageEnglish
Published Pardibuce University of Pardubice, Faculty of Economics and Administration 01.01.2022
Subjects
Economic growth
Foreign investment
Generalized method of moments
Industrial development
Middle income
Productivity
Resource allocation
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Summary:This paper examines the relationship between total factor productivity, trade openness, and foreign direct investment to economic growth in 90 middle-income countries from 1990 to 2020. We employ the Generalized Method of Moments with country and period fixed effects to overcome heteroscedasticity and endogeneity issues. The findings indicate a percentage increase in net FDI inflows and Trade Openness improves economic growth by 0.13% and 0.19%, respectively. However, total factor productivity negatively impacts growth due to the improper allocation of resources across sectors. Our paper contributes policy implications to develop economies sustainably. Finally, our findings support comparative advantage (Ricardo, 2015), the internalization theory of Buckley and Casson (1976), and industrialization theories.
ISSN:1804-8048
1211-555X
1804-8048
DOI:10.46585/sp30031615