There are many debates on the impact of foreign direct investment inflows on gross domestic product in host country. However, little is known about the indirect effects of foreign direct investment inflows on gross domestic product. The result of the analysis confirms the existence of direct effect ignoring how the effected was generated through some other variables.This may be due to the methods that are generally used in the research while analyzing the relationship between foreign direct investment inflows and gross domestic product. Some of the methods used are multiple regression models (Abbas, Akbar, Nasir, Aman & Naseem, 2011), correlation and regression model (Nadeem, Naveed, Zeeshan & Sonia, 2013), cointegration analysis (Nosheen 2013), simple regression (Tamilselvan, & Manikandan, 2015), generalized least squares estimator (Khan, Shiraz, Mehboob & Farhan 2014). They concluded on the positive effect of foreign direct investment inflows on gross domestic product without considering the possible indirect effect.Not analyzing the existence of indirect effect that foreign direct investment may have on gross domestic product through a third variable may lead to a biased conclusion. One variable may have effect on the other variable trough a third variable, without this there may be no direct effect.
By applying causal steps procedures recommended by Baron and Kenny (1986), I analyzed the relationship between foreign direct investment inflows (FDI) and gross domestic product (GDP) in low and low middle income countries. The result of the analysis shows that there is a complete mediation of FDI through house hold consumption, a partial mediation of FDI through female labor participation, a partial mediation of FDI through dependency age youth, and partial mediation of FDI through female unemployment rate.
Because it will control the market and monopolize and manipulate the prices of materials.
Low and low middle income countries have many constraints in its economic development. FDI in such countries gives an impetus to the economy by virtue of generating employment of local people, which uplifts their social status and increases the purchase power. It creats an opportunity for the allied component business and increases the demand also creats a competitive market making circulation of liquidity. It definitely increases the gross income of the country. However, FDI must be regulated by the government authority for its long term benefits.
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@Niyungeko Antoine
Since it led the global, mismanaging and suppressing the bond yields.
Dear Mahendra, thank you for your ideas. There are various points of view on the effect of FDI. A case by case analysis is the best approach to be used before concluding.
Hi,
Niyungeko Antoine The following link would be helpful for you.
https://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/2626.pdf
Hi dear Md.Shakhaowat Hossin,
thank you for your document. It has up dated information.
Hi Antoine, since you found a complete mediation of FDI through household consumption, maybe it is due to some other variable as well, since you have not included in your study the effect of remittance inflows. Please do not underestimate the effect of remittances since you study low and middle income countries.. It is expected that FDI will generate growth within these countries.You can explore the indirect effect of FDI on GDP through the job creation and trade or competitiveness of some economic branches in the host countries as well. Greeting to you and a lot of success for your research!
Dear Mr. Goran, thanks you for your new ideas.Exploring indirect effect of FDI on GDP through the job creation and trade is what I m doing now in my dissertation. I m working on Sub- Sahara Afrian countries, and the result are in line with your comment. There a partial mediation Partial mediation for female unemployment rate,exports, imports, female employment in industry, and services.
Best
Antoine
Dear Dr.Sule,theorically yes, but in most of time companies in host country may not be able to compete and close.
Dear Niyungeko Antoine ,
very good question. I generally tend to agree with comments that Goran Miladinov provided.
You can also check one particular dimension of FDI effect on low/middle income economies by reading this research.
Article Comparative profitability analysis of foreign direct and dom...
kind regards,
FDI can bring a new culture of business to the developing countries, and can enforce laws and regulations such as property rights.
Dear Dr. Sule, thank you for your valuable ideas. But, literature shows also bad side of FDI.
Best
Antoine.
The success of host countries in taking advantages from the FDI depends on the inherent capabilities and the urge towards enhancing performance efficiency through complete restructuring of the entrepreneurial activities. If FDI inflows are allowed just for the sake of mere 'global visibility' (without improving the inner capabilities), the outcomes may be disastrous, as hinted by Niyungeko Antoine
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