Threshold effect of foreign direct investment on economic growth in BRICS countries: new evidence from PTAR and PSTAR models

Maha Kalai (), Hamdi Becha () and Helali Kamel
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Maha Kalai: University of Sfax
Hamdi Becha: University of Sfax

International Journal of Economic Policy Studies, 2024, vol. 18, issue 1, No 9, 227-258

Abstract: Abstract In recent years, the BRICS economies have attracted significant amounts of foreign direct investment (FDI). These FDI inflows has helped fuel their economic growth rates, which leads one to predict that they will continue to outpace the G-7 economies in the near future. Thus, the aim of this study is to investigate the nature of the relationship between FDI and economic growth in BRICS countries from 1990 to 2020, using the Panel Threshold Autoregressive (PTAR) and Panel Smooth Transition Autoregressive (PSTAR) models. The study reveals that there is a non-linear relationship between FDI and economic growth, with the presence of thresholds equal to − 1.294 (1.42% of GDP) and − 1.283 (1.43% of GDP), respectively. Furthermore, the findings indicate that trade, domestic investment, and human capital have a positive impact on economic growth above these estimated thresholds more than below which confirm that more attracting FDI represents an important factor for these countries to improve economic growth. The study’s findings have significant implications for policymakers in the BRICS countries, particularly in response to the global challenges facing these economies. Thus, in order to promote economic growth and development, they should adopt a liberal strategy that encourages FDI. This strategy may involve creating an enabling environment for FDI by implementing policies that enhance the ease of doing business, improving the quality of infrastructure, and enhancing the legal and regulatory framework.

Keywords: FDI; Economic growth; Panel non-linear models; BRICS (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s42495-023-00126-8

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