Economic complexity, FDI and sustainable growth: Evidence from emerging economies

Abstract

This study investigates the relationship between foreign direct investment (FDI), economic complexity, and sustainable growth in selected emerging economies over the period 2010–2023. Using a panel ARDL approach, it examines whether countries with higher levels of economic complexity are more successful in transforming FDI inflows into long-term growth. The findings reveal that absorptive capacity plays a crucial role: while more diversified and technology-intensive economies benefit significantly from FDI, less complex economies face challenges in utilizing FDI effectively, thereby limiting its contribution to growth. By uncovering the mediating role of economic complexity in the FDI–growth nexus, this study provides a novel contribution to the literature. Furthermore, it offers policy recommendations for emerging economies seeking to strengthen innovation capacity and enhance industrial diversification.

Keywords

• Economic Complexity
• FDI
• Sustainable Growth
• Emerging Economies

Ekonomik karmaşıklık, DYY ve sürdürülebilir büyüme: Yükselen ekonomilere dair kanıtlar

Abstract

Bu çalışma, 2010–2023 dönemi için seçilmiş yükselen ekonomilerde doğrudan yabancı yatırım (DYY), ekonomik karmaşıklık ve sürdürülebilir büyüme arasındaki ilişkiyi incelemektedir. Panel ARDL yaklaşımını kullanarak, daha yüksek ekonomik karmaşıklık seviyesine sahip ülkelerin DYY girişlerini uzun vadeli büyümeye dönüştürmede daha başarılı olup olmadığını araştırmaktadır. Bulgular, emilim kapasitesinin kritik bir rol oynadığını göstermektedir: Üretim yapısı daha çeşitlenmiş ve teknoloji yoğun olan ekonomiler DYY’den önemli ölçüde fayda sağlarken, daha az karmaşık ekonomiler DYY’yi etkin biçimde kullanmakta zorlanmakta ve bu durum yatırımın büyümeye katkısını sınırlamaktadır. Ekonomik karmaşıklığın DYY–büyüme ilişkisindeki aracılık rolünü ortaya koyan çalışma, literatüre özgün bir katkı sunmaktadır. Ayrıca, yenilik kapasitesini güçlendirmek ve endüstriyel çeşitliliği artırmak isteyen yükselen ekonomilere yönelik politika önerileri geliştirmektedir.

Keywords

• Ekonomik Karmaşıklık
• DYY
• Sürdürülebilir Büyüme
• Yükselen Ekonomiler

References

1. Aghion, P., & Howitt, P. (1992). A model of growth through creative destruction. Econometrica, 60(2), 323–351.
2. Aitken, B., & Harrison, A. (1999). Do domestic firms benefit from direct foreign investment? Evidence from Venezuela. American Economic Review, 89(3), 605–618.
3. 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.
4. Apergis, N., & Payne, J. E. (2010). Renewable energy consumption and growth in Eurasia. Energy Economics, 32(6), 1392–1397.
5. Arrow, K. J., Dasgupta, P., Goulder, L., Mumford, K., & Oleson, K. (2012). Sustainability and the measurement of wealth. Environment and Development Economics, 17(3), 317–353.
6. Balasubramanyam, V. N., Salisu, M., & Sapsford, D. (1996). Foreign direct investment and growth in EP and IS countries. Economic Journal, 106(434), 92–105.
7. Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115–143.
8. Blomström, M., & Kokko, A. (2003). The economics of foreign direct investment incentives. NBER Working Paper No. 9489.

9. 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.
10. Buckley, P. J., & Casson, M. (1976). The future of the multinational enterprise. London: Macmillan.
11. Can, M., & Gozgor, G. (2021). The impact of economic complexity on carbon emissions: Evidence from emerging economies. Environmental Science and Pollution Research, 28(28), 1–15.
12. Carkovic, M., & Levine, R. (2005). Does foreign direct investment accelerate economic growth? In T. Moran, E.
13. Graham, & M. Blomström (Eds.), Does foreign direct investment promote development? (pp. 195–220). Washington, DC: Institute for International Economics.
14. Cristelli, M., Tacchella, A., & Pietronero, L. (2015). The heterogeneous dynamics of economic complexity. PLoS ONE, 10(2), e0117174.
15. Cole, M. A. (2004). Trade, the pollution haven hypothesis and the environmental Kuznets curve: Examining the linkages.Ecological Economics, 48(1), 71–81.
16. Dean, J. M., Lovely, M. E., & Wang, H. (2009). Are foreign investors attracted to weak environmental regulations? Evaluating the evidence from China. Journal of Development Economics, 90(1), 1–13.
17. Dechezleprêtre, A., & Sato, M. (2017). The impacts of environmental regulations on competitiveness. Review of Environmental Economics and Policy, 11(2), 183–206.
18. Dinda, S. (2004). Environmental Kuznets Curve hypothesis: A survey. Ecological Economics, 49(4), 431–455.
19. Dunning, J. H. (1988). The eclectic paradigm of international production: A restatement and some possible extensions. Journal of International Business Studies, 19(1), 1–31.
20. Durham, J. B. (2004). Absorptive capacity and the effects of foreign direct investment and equity foreign portfolio investment on economic growth. European Economic Review, 48(2), 285–306.
21. Eskeland, G. S., & Harrison, A. E. (2003). Moving to greener pastures? Multinationals and the pollution haven hypothesis. Journal of Development Economics, 70(1), 1–23.
22. Felipe, J., Kumar, U., & Abdon, A. (2012). As you sow so shall you reap: From capabilities to opportunities. Levy Economics Institute Working Paper, No. 723.
23. Friede, G., Busch, T., & Bassen, A. (2015). ESG and financial performance: Aggregated evidence from more than 2000 empirical studies. Journal of Sustainable Finance & Investment, 5(4), 210–233.
24. Görg, H., & Greenaway, D. (2004). Much ado about nothing? Do domestic firms really benefit from foreign direct investment? World Bank Research Observer, 19(2), 171–197.
25. Grossman, G. M., & Krueger, A. B. (1995). Economic growth and the environment. Quarterly Journal of Economics, 110(2), 353–377.
26. Harding, T., & Javorcik, B. S. (2011). Roll out the red carpet and they will come: Investment promotion and FDI inflows. Economic Journal, 121(557), 1445–1476.
27. Hartwick, J. M. (1977). Intergenerational equity and the investing of rents from exhaustible resources. American Economic Review, 67(5), 972–974.
28. Hausmann, R., Hidalgo, C., Bustos, S., Coscia, M., Simoes, A., & Yildirim, M. A. (2014). The atlas of economic complexity: Mapping paths to prosperity. Cambridge, MA: MIT Press.
29. Haskel, J. E., Pereira, S. C., & Slaughter, M. J. (2007). Does inward foreign direct investment boost the productivity of domestic firms? Review of Economics and Statistics, 89(3), 482–496.
30. Hidalgo, C. A., & Hausmann, R. (2009). The building blocks of economic complexity. Proceedings of the National Academy of Sciences, 106(26), 10570–10575.
31. Hidalgo, C. A., Klinger, B., Barabási, A.-L., & Hausmann, R. (2007). The product space conditions the development of nations. Science, 317(5837), 482–487.
32. Hymer, S. (1976). The international operations of national firms: A study of direct foreign investment. Cambridge, MA: MIT Press.
33. Javorcik, B. S. (2004). Does foreign direct investment increase the productivity of domestic firms? In search of spillovers through backward linkages. American Economic Review, 94(3), 605–627.
34. Keller, W., & Yeaple, S. R. (2009). Multinational enterprises, international trade, and productivity growth: Firm-level evidence from the United States. Review of Economics and Statistics, 91(4), 821–831.
35. Kellenberg, D. K. (2009). An empirical investigation of the pollution haven effect with strategic environment and trade policy. Journal of International Economics, 78(2), 242–255.
36. Lapatinas, A. (2019). Economic complexity and human development: A note. Economics Bulletin, 39(2), 621–633.
37. Lee, J. W., & Lee, H. (2021). Human capital and development: Lessons and insights from the Republic of Korea. Asian Economic Policy Review, 16(2), 273–295.
38. Markusen, J. R. (1997). Trade versus investment liberalization. NBER Working Paper No. 6231.
39. Markusen, J. R., & Venables, A. J. (1999). Foreign direct investment as a catalyst for industrial development. European Economic Review, 43(2), 335–356.
40. Mealy, P., & Teytelboym, A. (2020). Economic complexity and the green economy. Research Policy, 103948.
41. Neagu, O. (2020). The link between economic complexity and environmental degradation: Evidence from European Union countries. Sustainability, 12(11), 4680.
42. Nunnenkamp, P., & Spatz, J. (2004). FDI and economic growth in developing economies: How relevant are host-economy and industry characteristics? Transnational Corporations, 13(3), 53–86.
43. OECD. (2021). FDI qualities indicators: Measuring the sustainable development impacts of investment. OECD Publishing.
44. Pata, U. K. (2021). The effect of economic complexity on CO₂ emissions in Turkey: Evidence from ARDL bounds testing approach. Environmental Science and Pollution Research, 28(6), 6326–6335.
45. Pereira, A., & Xu, Z. (2019). Environmental foreign direct investment: Theory and evidence. Ecological Economics, 162, 1–10.
46. Popp, D. (2002). Induced innovation and energy prices. American Economic Review, 92(1), 160–180.
47. Porter, M. E., & Van der Linde, C. (1995). Toward a new conception of the environment-competitiveness relationship. Journal of Economic Perspectives, 9(4), 97–118.
48. Romer, P. M. (1990). Endogenous technological change. Journal of Political Economy, 98(5), S71–S102.
49. Rodrik, D. (2014). Green industrial policy. Oxford Review of Economic Policy, 30(3), 469–491.
50. Sadorsky, P. (2009). Renewable energy consumption and income in emerging economies. Energy Policy, 37(10), 4021–4028.
51. Stern, D. I. (2004). The rise and fall of the environmental Kuznets curve. World Development, 32(8), 1419–1439.
52. Stiglitz, J. E., Sen, A., & Fitoussi, J.-P. (2009). Report by the Commission on the Measurement of Economic Performance and Social Progress. Paris: OECD.
53. UN (2015). Transforming our world: The 2030 Agenda for Sustainable Development. New York: United Nations.
54. UNCTAD (2015). World Investment Report 2015: Reforming international investment governance. Geneva: United Nations.
55. UNCTAD (2020). World Investment Report 2020: International production beyond the pandemic. Geneva: United Nations.
56. UNEP (2011). Towards a green economy: Pathways to sustainable development and poverty eradication. Nairobi: United Nations Environment Programme.
57. Vernon, R. (1966). International investment and international trade in the product cycle. Quarterly Journal of Economics, 80(2), 190–207