The role of external debt in the foreign direct investment-growth relationship

Sailesh Tanna; Chengchun Li; Glauco De Vita

doi:10.1002/ijfe.1628

The role of external debt in the foreign direct investment-growth relationship

Sailesh Tanna, Chengchun Li, Glauco De Vita

School of Economics, Finance and Accounting

Changzhou University

Research output: Contribution to journal › Article › peer-review

23 Citations (Scopus)

691 Downloads (Pure)

Abstract

This paper investigates the relevance of external debt as a factor inhibiting economic growth gains to be accrued from foreign direct investment (FDI). We develop a model which formalises a mechanism to allow for the influence of external debt in the transmission of FDI-generated externalities and conduct threshold regressions to test the existence of a debt contingency effect which limits the positive impact of inward FDI on growth. Using annual as well as five-year averaged data for 39 developing countries over the period 1984-2010, our findings support the hypothesis that FDI-induced growth is dependent on the external debt constraint. In particular, we show that beyond a certain threshold high indebtedness constrains economies from reaping growth benefits from FDI as they seek to reduce their debt levels. In this scenario, the evidence also shows that increasing financial development can mitigate the negative influence of high external debt on the FDI-growth nexus.

Original language	English
Pages (from-to)	393-412
Number of pages	20
Journal	International Journal of Finance and Economics
Volume	23
Issue number	4
Early online date	23 Jul 2018
DOIs	https://doi.org/10.1002/ijfe.1628
Publication status	Published - 12 Oct 2018

Bibliographical note

This is the peer reviewed version of the following article: Tanna, S, Li, C & De Vita, G 2018, 'The role of external debt in the foreign direct investment-growth relationship' International Journal of Finance and Economics, vol 23, no. 4, pp. 393-412, which has been published in final form at https://dx.doi.org/10.1002/ijfe.1628

This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.

Keywords

Foreign Direct Investment
External Debt
Economic growth
Treshold Estimation

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

Access to Document

10.1002/ijfe.1628

Post-PrintAccepted author manuscript, 885 KBLicence: CC BY-NC

https://onlinelibrary.wiley.com/doi/pdf/10.1002/ijfe.1628

Cite this

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title = "The role of external debt in the foreign direct investment-growth relationship",

abstract = "This paper investigates the relevance of external debt as a factor inhibiting economic growth gains to be accrued from foreign direct investment (FDI). We develop a model which formalises a mechanism to allow for the influence of external debt in the transmission of FDI-generated externalities and conduct threshold regressions to test the existence of a debt contingency effect which limits the positive impact of inward FDI on growth. Using annual as well as five-year averaged data for 39 developing countries over the period 1984-2010, our findings support the hypothesis that FDI-induced growth is dependent on the external debt constraint. In particular, we show that beyond a certain threshold high indebtedness constrains economies from reaping growth benefits from FDI as they seek to reduce their debt levels. In this scenario, the evidence also shows that increasing financial development can mitigate the negative influence of high external debt on the FDI-growth nexus.",

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author = "Sailesh Tanna and Chengchun Li and {De Vita}, Glauco",

note = "This is the peer reviewed version of the following article: Tanna, S, Li, C & De Vita, G 2018, 'The role of external debt in the foreign direct investment-growth relationship' International Journal of Finance and Economics, vol 23, no. 4, pp. 393-412, which has been published in final form at https://dx.doi.org/10.1002/ijfe.1628 This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving. ",

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N1 - This is the peer reviewed version of the following article: Tanna, S, Li, C & De Vita, G 2018, 'The role of external debt in the foreign direct investment-growth relationship' International Journal of Finance and Economics, vol 23, no. 4, pp. 393-412, which has been published in final form at https://dx.doi.org/10.1002/ijfe.1628 This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.

PY - 2018/10/12

Y1 - 2018/10/12

N2 - This paper investigates the relevance of external debt as a factor inhibiting economic growth gains to be accrued from foreign direct investment (FDI). We develop a model which formalises a mechanism to allow for the influence of external debt in the transmission of FDI-generated externalities and conduct threshold regressions to test the existence of a debt contingency effect which limits the positive impact of inward FDI on growth. Using annual as well as five-year averaged data for 39 developing countries over the period 1984-2010, our findings support the hypothesis that FDI-induced growth is dependent on the external debt constraint. In particular, we show that beyond a certain threshold high indebtedness constrains economies from reaping growth benefits from FDI as they seek to reduce their debt levels. In this scenario, the evidence also shows that increasing financial development can mitigate the negative influence of high external debt on the FDI-growth nexus.

AB - This paper investigates the relevance of external debt as a factor inhibiting economic growth gains to be accrued from foreign direct investment (FDI). We develop a model which formalises a mechanism to allow for the influence of external debt in the transmission of FDI-generated externalities and conduct threshold regressions to test the existence of a debt contingency effect which limits the positive impact of inward FDI on growth. Using annual as well as five-year averaged data for 39 developing countries over the period 1984-2010, our findings support the hypothesis that FDI-induced growth is dependent on the external debt constraint. In particular, we show that beyond a certain threshold high indebtedness constrains economies from reaping growth benefits from FDI as they seek to reduce their debt levels. In this scenario, the evidence also shows that increasing financial development can mitigate the negative influence of high external debt on the FDI-growth nexus.

KW - Foreign Direct Investment

KW - External Debt

KW - Economic growth

KW - Treshold Estimation

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DO - 10.1002/ijfe.1628

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SN - 1099-1158

VL - 23

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EP - 412

JO - International Journal of Finance and Economics

JF - International Journal of Finance and Economics

IS - 4

ER -

The role of external debt in the foreign direct investment-growth relationship

Abstract

Bibliographical note

Keywords

UN SDGs

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Sailesh Tanna

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The role of external debt in the foreign direct investment-growth relationship

Abstract

Bibliographical note

Keywords

UN SDGs

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Sailesh Tanna

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