Sustainable Economic Growth and FDI Inflow: A Comparative Panel Econometric Analysis of Low-Income and Middle-Income Nations

Abstract

The study examines the effect of sustainable economic growth on “FDI inflow” using comparative panel econometrics on two panels: “low-income” and “middle-income” economies between 1970 and 2021. For this, 18 “low-income” and 53 “middle-income” economies constitute the sample. The data were retrieved from the “world development indicator” website. Pre-diagnostic and post-diagnostic estimations were performed using static panel and dynamic panel approaches. Sustainable growth increases “FDI inflow” in “low-income” and “middle-income” economies during the study period, according to the findings. In addition, trade openness and the exchange rate have the potential to boost “FDI inflow” in “low-income” economies. Similarly, in “middle-income” economies, the real growth rate and exchange rate are significant boosts, however inflation significantly reduces the “FDI inflow”. The findings show that policymakers in “low-income” and “middle-income” economies should maintain long-term, sustainable economic growth in order to attract more “FDI inflow” in their respective economies. Compared to the current state of knowledge in the subject, the study’s findings provide evidence for “low-income” and “middle-income” nations that have been mainly overlooked in terms of sustainable growth for attracting FDI inflow. The study’s outcomes are applicable and generalizable only for “middle-income” and “low-income” economies. Future researchers may include additional control factors and expand the scope of the study to include “high-income” groups.