This paper contributes to the on-going discourse on the relationship between foreign direct investment inflows (fdi) and economic growth by examining the afore-mentioned nexus in the context of varying regimes of central bank independence (cbi). Our objective here is to determine if these differences in cbi regimes play any role in the long run fdi and growth links.
We pursue this objective by subjecting data on fdi flows and gross domestic product (gdp) to panel cointegration tests. Our panel consists of 22 emerging countries, subdivided into high and low cbi groups. Test results provide evidence of strong cointegration between fdi and economic growth for both country subgroups.
This seems to suggest that differences in cbi levels do not preclude spillover growth effects of fdi in the long run. This not only confirms that fdi flows and growth nexus is a long-run phenomenon, but in the context of cbi, also hints at the convergence of this effect regardless of a country’‘s cbi regime.
Foreign Direct Investment, Economic Growth, Emerging Countries, Inflation Rates, and Central bank Independence.