Impacts of the Contributions of FDI and Remittances on the Economic Growth in Asia and Latin America: A Comparative Study

• Published in: Frontiers of economics in China Vol. 14; no. 3; pp. 371 - 400
• Main Authors: Chan, Leo H, Sotomayor, Maritza, Lien, Donald
• Format: Journal Article
• Language: English
• Published: Beijing Higher Education Press 01.09.2019; Higher Education Press Limited Company
• Subjects: Analysis; Asia; Business financing; Capital movement; China; Comparative literature; Comparative studies; Developing countries; Economic aspects; Economic development; Economic growth; Emerging markets; Foreign capital; Foreign direct investment; foreign direct investment (FDI); Foreign investment; Foreign investments; Generalized method of moments; Gross domestic product; Industrial policy; Latin America; LDCs; panel data; Remittances; Retirement benefits; Mexico; United Kingdom; South Korea; Malaysia; China; Latin America; Asia
• ISSN: 1673-3444; 1673-3568
• DOI: 10.3868/s060-008-019-0017-6

Foreign direct investment (FDI) and foreign remittance have been the main sources of external capital inflows for many developing countries. FDI has been credited as the main driver of rapid economic growth in many Asian countries/regions in recent decades. However, this effect of FDI on long-run economic growth has not been observed in Latin American countries. Now, the question is whether FDI and an increase in foreign remittances in the past two decades have achieved expected positive results in terms of economic growth for emerging economies. This study uses a generalized method of moments (GMM) dynamic panel model to quantify the impacts of FDI and foreign remittances as sources of foreign capital for Asia and Latin America. Our findings suggest that FDI and remittances perform differently in different regions in terms of their impacts on GDP growth. Countries that have specific policies (i.e., industrial policy, domestic content requirement, and export production targets) for FDI are likely to derive more significant benefits from FDI and remittances. Developing countries that are emerging or lagging should learn from the countries with positive outcomes and implement similar policies.