The moderating role of infrastructure in the relationship of foreign direct investment and economic growth of developing countries / Al Mamun Liton ... [et al.]

Developing countries are experiencing a steady decline in GDP per capita, increasing the disparity between the nations. Additionally, there has been a significant drop in foreign direct investment in these developing regions. Therefore, the study empirically assessed the impact of foreign direct investment on economic growth of 49 developing countries along with estimating the moderation role of infrastructure in developing countries from 2000 to 2022. The study utilized the pooled OLS method along with two step system GMM estimation technique for robustness. Both the methods showed that foreign direct investment had a significant positive impact on the economic growth of developing countries. The result showed that infrastructure positively moderated the relationship of foreign direct investment and economic growth as the interaction term of infrastructure and foreign direct investment was positive and significant at the 1 % level. Furthermore, the study showed that increase in trade openness, labour and infrastructure had a significant positive impact on economic growth of the developing countries, but capital accumulation had adverse relation with economic growth of developing countries. The study will be helpful for the policymakers, to consider trade openness, labour and infrastructure as part of their budgetary focus when planning their country’s budget in the upcoming years.