Research

Abstract: We investigate the relationship between financialization and growth in advanced economies (AE) and emerging market and developing economies (EMDE). Our dynamic panel threshold estimation results suggest that the growth-enhancing effect of domestic financialization, proxied by financial development (FD), is much higher in EMDE with lower levels of FD, but FD impedes growth in AE, where FD is already high. International financialization, measured by international financial integration (IFI), can be used as an endogenously estimated threshold, which suggests that FD enhances growth in less financially integrated EMDE but hinders it in more financially integrated AE. Governance is also a threshold in EMDE, where the growth-enhancing effect of FD is significantly stronger when institutional quality is better. Our results imply that, to fully realize the growth benefits of financialization, policy makers should focus on strengthening institutions and implementing policies that attract more stable financial flows.

Abstract: We investigate whether the impacts of the main push (global financial conditions, GFC) and pull (growth) factors on capital inflows are invariant to endogenously estimated thresholds for exchange rate regimes (ERRs) in emerging market economies. The impact of GFC is higher under more flexible ERRs for aggregate capital and portfolio inflows. FDI inflows are determined by growth. The sensitivity of aggregate and other investment inflows to growth is higher under more rigid ERRs. Our results also suggest that managed ERRs encourage capital inflows by allowing countries to import the monetary policy credibility of the anchored country and to provide an exchange rate guarantee.

Abstract: This paper studies whether foreign direct investment (FDI)-CO2 emissions relationship may change depending on the data-driven estimated threshold levels for the country characteristics (CC) including human capital and governance in a sample of 13 Middle East and North Africa (MENA) economies during the 1996–2019 period. Our results strongly suggest that endogenously estimated CC thresholds matter for the impact of FDI on CO2 emissions. The pollution haven hypothesis, which maintains that FDI is associated with higher levels of pollution, appears to be valid for economies with weak CC. In addition to this, the pollution halo argument suggesting FDI lowers the emissions appears to be hold in countries with strong CC. The results in this study may indicate that policies aiming to improve human capital and governance may be expected not only to increase the economic benefits of FDI in terms of growth but also mitigate the negative environmental impacts of FDI in the MENA region. 

Purpose: This paper investigates the main drivers of foreign direct investment (FDI) inflows for a balanced panel of 11 Middle East and North Africa (MENA) economies over the 1995–2017 annual period. The author postulates that the impacts of the main pull (growth) and push (global financial conditions, GFC) factors may not be invariant to endogenously estimated thresholds for structural domestic conditions (SDCs) including trade and capital account openness, financial development, human capital (HC) and natural resource endowments.

Design/methodology/approach: The author investigates whether the main SDC provide endogenous thresholds for the impacts of basic pull and push factors on FDI inflows for the MENA sample by employing panel fixed effects threshold procedure of Hansen (1999). As a robustness check, the author also present the results of the dynamic panel data two-step system generalized method of moments (GMM) estimation, which explicitly consider the potential endogeneity of SDC along with main pull factor for the evolution of FDI inflows.

Findings: Growth, GFC and SDC are important drivers of FDI inflows. The impacts of SDC tend to be higher in countries with higher financial depth, openness to international trade and finance and lower natural resource and HC endowments. The sensitivities of FDI inflows to GFC are substantially higher in the countries which are more open to international trade and capital flows and higher levels of financial depth. FDI inflows are found to be pro-cyclical and this pro-cyclicality tends to be much higher for the episodes exceeding the SDC thresholds.

Practical implications: Improving SDC including higher openness to international trade and finance and financial development may be effective in encouraging FDI inflows. The findings support an argument that, better SDC are crucially important not only for attracting FDI but also achieving the growth benefits of FDI inflows. Therefore, improving SDC appears to be an important growth-oriented policy agenda for emerging market and developing economies (EMDEs) including MENA.

Originality/value: The impacts of the main push and pull factors on FDI (and capital) inflows may be nonlinear. The literature often tackles the nonlinearity issue either by some interaction specifications or imposing exogenous thresholds. The literature, however, is yet to comprehensively investigate whether the main SDC provide endogenous thresholds for the impacts of basic pull and push factors. The author aims to contribute to the literature by estimating endogenous SDC threshold levels for the impacts of the main determinants of FDI flows for MENA.

Abstract: We investigate the long-run relations and equilibrium correction mechanisms between gross capital inflows, outflows and global financial conditions for advanced (AE) and emerging market economies (EME). According to our results, the puzzling findings of the recent literature suggesting that domestic and foreign investors act as distant cousins, leading to capital inflows and outflows to act as twins, tend to be supported for the long run. The short-run relations, however, often appear to be consistent with the conventional theory suggesting that the behaviors of residents and non-residents do not systematically diverge from each other. Consistent with flight to safety concerns, capital outflows from EME and capital inflows to AE tend to increase in the long run in response to worsening global financial conditions. We find that these results essentially hold for the main components of capital flows as well.