Foreign Resource Inflows and Economic Growth in Selected Countries in the Global South
Abstract
This study examined the impact of foreign resource inflows: Foreign Direct Investment , Official Development Assistance , and Foreign Portfolio Investment on economic growth in selected Global South countries from 2002–2022, with emphasis on the moderating role of corruption control and regulatory quality. The study employed dynamic panel estimation techniques, including the System Generalized Method of Moments and Dynamic Panel Threshold Model , using data sourced from the World Bank, IMF, UNCTAD, and OECD. The findings revealed that FDI exerts a positive and significant effect on economic growth, particularly in developing economies, while ODA and FPI exert significant negative effects on growth. The study further established that the relationships between foreign capital inflows and economic growth are nonlinear and conditional on governance thresholds. Specifically, FDI enhances growth only when corruption control and regulatory quality exceed threshold levels of -0.833 and -0.548 respectively. Conversely, ODA reduces growth when corruption control exceeds -1.004, while FPI negatively affects growth when corruption control and regulatory quality exceed -0.254 and -0.225 respectively. The study concluded that the effectiveness of foreign capital in the Global South depends largely on institutional quality and absorptive capacity. It recommends governance reforms, improved regulatory frameworks, effective aid management, and balanced financial regulations to maximize the growth benefits of foreign capital inflows.
References
Adams, R. H., & Page, J. (2005). Do international migration and remittances reduce poverty in developing countries? World Development, 33(10), 1645–1669. Adams, S. & Opoku, E. E. O., 2015. 'Foreign direct investment, regulations and growth in sub-Saharan Africa,' Economic Analysis and Policy, Elsevier, vol. 47(C), pages 48-56. Adedokun, A.J (2017). 'Foreign Aid, Governance and Economic Growth in Sub-Saharan Africa: Does One Cap Fit All?,' African Development Review, African Development Bank, vol. 29(2), pages 184-196 Agyei, S. K., Obuobi, N. K., Isshaq, M. Z., Abeka, M. J., Gatsi, J. G., Boateng, E., & Amoah, E. K. (2022). Country-level corporate governance and foreign portfolio investments in Sub-Saharan Africa: The moderating role of institutional quality. Cogent Economics & Finance, 10(1), 2106636 Alfaro, L. (2017). Gains from foreign direct investment: Macro and micro approaches. World Bank Economic Review, 31(Supplement_1), S2–S15. Alfaro, L., Chanda, A., Kalemli-Ozcan, S., & Sayek, S. (2004). FDI and economic growth: The role of local financial markets. Journal of International Economics, 64(1), 89–112. Asafo-Agyei, A., & Kodongo, O. (2022). Foreign direct investment and economic growth: The role of institutions. Journal of African Business, 23(2), 1–21. Asongu, S. A., & Odhiambo, N. M. (2020). Foreign direct investment and economic growth: The role of governance. African Development Review, 32(3), 356–369. Borensztein, E., De Gregorio, J., & Lee, J. W. (1998). How does foreign direct investment affect economic growth? Journal of International Economics, 45(1), 115–135. Burnside, C., & Dollar, D. (2000). Aid, policies, and growth. American Economic Review, 90(4), 847–868. Chami, R., Fullenkamp, C., & Jahjah, S. (2005). Are immigrant remittance flows a source of capital for development? IMF Staff Papers, 52(1), 55–81. Cohen, W. M., & Levinthal, D. A. (1990). Absorptive capacity: A new perspective on learning and innovation. Administrative Science Quarterly, 35(1), 128–152. Dunning, J. H., & Lundan, S. M. (2008). Multinational enterprises and the global economy (2nd ed.). Edward Elgar Publishing. Easterly, W. (2006). The white man’s burden: Why the West’s efforts to aid the rest have done so much ill and so little good. Penguin Press. Hermes, N., & Lensink, R. (2003). Foreign direct investment, financial development and economic growth. Journal of Development Studies, 40(1), 142–163. International Monetary Fund . (2009). Balance of payments and international investment position manual (6th ed.). IMF. Kumar, G. & Saxena, S. (2022) Recent Trends of Foreign Portfolio Investment in India: An Analytical Review, International Journal of Science and Management Studies, 5(i2), 289-302. Mairafi, S. L., Ibrahim, M., Abdullahi, Z. T. (2024). Effect of foreign capital inflow on economic growth in Sub-Saharan Africa. Applied Journal of Economics, Management, and Social Sciences, 5(3), 45-57. Manni, U. H., Siddiqui, S., & Afzal, M. N. I. (2012). An empirical investigation on trade openness and economic growth in South Asia. Asian Economic and Financial Review, 2(8), 920–930. McArthur, J. W., & Sachs, J. D. (2019). Development aid and economic growth: A review of evidence. World Development, 127, 104–116. Mensah, J.K & Ernest, S., Gborse, F., & Boateng, N (2023). 'Foreign direct investment, remittances, real exchange rate, imports, and economic growth in Ghana: An ARDL P-ISSN 2695-186X approach,' Cogent Economics & Finance, Taylor & Francis Journals, vol. 11(1), pages 2185343-218, Moosa, I. A. (2002). Foreign direct investment: Theory, evidence and practice. Palgrave Macmillan. Okowa, W. J. (1996). Development economics and planning in Nigeria. Paragraphics. Okpara, R. M., Osunkwo, F. O. C., Achara, L. O., Uguru, N. E., Nwokoro, A., Chukwunenye, I, (2025), Capital Inflows and Economic Resilience: Foreign Direct and Portfolio Investments as Growth Catalysts in the Nigerian Economy. African Journal of Economics and Sustainable Development 8(3), 55-71. Olaleye, O. O. (2022). Impact of Foreign Capital Inflow on a Selected Macroeconomic Variable in Nigeria 1990-2021. Indiana Journal of Humanities and Social Sciences, 3(7), 25-33. Omenda, P. A., & Kioko, U.M. (2022). The Effect of Official Development Assistance Aid on Economic Growth and Domestic Savings in Kenya. International Journal of Finance, Insurance and Risk Management 11(4), 63-77. Opoku, E. E. O., Ibrahim, M., & Sare, Y. A. (2019). Foreign direct investment and economic growth in Africa: The role of institutions. Journal of Economic Studies, 46(3), 504– 521. Organisation for Economic Co-operation and Development . (2008). OECD benchmark definition of foreign direct investment (4th ed.). OECD Publishing. Organisation for Economic Co-operation and Development . (2022). Development co- operation report 2022. OECD Publishing. Owusu-Nantwi, V. & Erickson, C. A (2019). Foreign Direct Investment and Economic Growth in South America. Journal Of International Economics 46(3), 31-49. Pesaran, M. H. (2015). Testing Weak Cross-Sectional Dependence in Large Panels. Econometric Reviews, 34(6-10), 1089-1117. Pesaran, M. H. (2021). General diagnostic tests for cross-sectional dependence in panels. Empirical Economics, 60, 13-50. Ratha, D. (2013). The impact of remittances on economic growth and poverty reduction. Migration Policy Institute Policy Brief, 1–12. Research in International Business and Finance. (2023). Portfolio capital flows and economic growth: Do institutional factors matter? Research in International Business and Finance, 66, 102019. Sachs, J. D. (2005). The end of poverty: Economic possibilities for our time. Penguin Press. Seo, M. H., & Shin, Y. (2016). Dynamic panels with threshold effect and endogeneity. Journal of Econometrics, 195(2), 169–186. Seyoum, M., Wu, R., & Lin, J. (2015). Foreign direct investment and economic growth: The role of institutional quality. Applied Economics Letters, 22(11), 1–5. Singh, T., & Gal, Z. (2020). Foreign direct investment and economic diversification in the Middle East. Economic Change and Restructuring, 53(3), 1–20. Stiglitz, J. E. (2000). Capital market liberalization, economic growth, and instability. World Development, 28(6), 1075–1086. Sundin, E., & Wieslander, J. (2022). The impact of foreign direct investment on economic growth for countries in Latin America. Lund University Libraries. Todaro, M. P., & Smith, S. C. (2020). Economic development (13th ed.). Pearson. United Nations Conference on Trade and Development . (2022). World investment report 2022: International tax reforms and sustainable investment. UN Publications. United Nations Conference on Trade and Development . (2024). World investment report 2024. UN Publications. Vadlamannati, K. C. (2009). Impact of foreign direct investment on economic growth in Latin America. Applied Economics, 41(5), 1–12. P-ISSN 2695-186X Van Dan, P., & Binh, T. Q. (2018). The impact of official development assistance on economic growth. Journal of Economics and Development, 20(2), 45–63. Wee-Yeap, L. (2023). Nexus Between Official Development Aid, Institutional Quality and Economic Growth: Evidence from CLMV countries. Australasian Accounting Business and Finance Journal17(3):40-61 World Bank. (2021). World development indicators. World Bank Publications. World Bank. (2023). Migration and development brief 39. World Bank Publications. Yahyaoui, I. & Bouchoucha, N. (2020). 'Foreign Aid-Growth Nexus in Africa: Do Institutions Matter?,' Journal of the Knowledge Economy, Springer; Portland International Center for Management of Engineering and Technology 11(4), 1663-1689.
More Articles from IIARD INTERNATIONAL JOURNAL OF ECONOMICS AND BUSINESS MANAGEMENT
E-Commerce Platform Utilization for Opportunity Recognition Among Business Education Postgraduate Students in Rivers State Universities
Author: Elechi, Ezinne, Wogboroma, Nyemaekile Ph.D, Godpower, Yiraodi Joel Ph.D
Developing Logistics Services for Cross-Border B2c E-Commerce in Vietnam
Author: Nguyen Thi Huyen Trang
Effect of Monetary and Fiscal Policy Measures on Economic Growth in Nigeria
Author: Jaja, Philomina Ejiroghene, Prof. C. G. Nwikina, Prof. C. R. Amadi, Prof. S. N. Amadi
The Role of Strategic Leadership in Mitigating Organizational Knowledge Loss During Digital Migration
Author: Ejalonibu Ojo Sakirulai
Effect of Socio-Economic Characteristics on the Poverty Status of Rural People in Plateau State, Nigeria
Author: Mankwat Gizo, Paul Dung Gadi, Ladi Mankwat Gizo