Impact of foreign capital inflows on economic growth in the presence of currency and banking crises

• Main Author: Syed Ali, Raza
• Format: Thesis
• Language: English; English; English
• Published: 2017
• Subjects: HG Finance
• Online Access: https://etd.uum.edu.my/6713/1/Depositpermission_s900169.pdf; https://etd.uum.edu.my/6713/2/s900169_01.pdf; https://etd.uum.edu.my/6713/3/s900169_02.pdf; https://etd.uum.edu.my/6713/
• Institution: Universiti Utara Malaysia

Foreign capital inflows (FCI) have been considered to be a key element in the process of economic globalization and integration of the world economy. However, the frequent occurrence of financial crises around the world has awakened the debate about the causes, consequences, impact and aftershocks of these crises. These sorts of financial crises are majorly occurring because of systemic banking crisis and currency crisis. These crises significantly influence the relationship between FCI and economic growth. The objective of this study is to identify the impact of foreign direct investment, foreign debt, workers’ remittances and exports of goods and services on economic growth in high, upper middle, lower middle and low income countries. To attain the objective of this research, we collect a panel data of 96 countries and group them on the basis of different income levels. The final sample of this study consists of 10 low income countries, 23 lower middle income countries, 30 upper middle income countries and 33 high income countries. We employed fixed effect & random effect model estimation method to judge the desired relationship among variables. Fully modified ordinary least squares (FMOLS) has also been used to ensure the robustness of initial results. Results indicate the negative and significant influence of systemic banking and currency crisis. Results also indicate the positive and significant impact of all four types of FCI on economic growth in all income level countries except, remittances in low income countries and foreign debt in lower middle income. These two results show the negative impact on economic growth. Results also conclude that the banking and currency crisis are harmful for the relationship of foreign direct investment and economic growth in all income level countries. The study recommends several policy implications to improve the positive impact of foreign capital inflows on economic growth and reduce or control the negatively influence of systemic banking crisis and currency crisis on the relationship of foreign capital inflows and economic growth