Foreign capital and growth nexus revisited: empirical evidence from South Asian countries

Abstract

This paper examines the effectiveness of foreign capital in the form of FDI, remittances, and foreign aid in improving economic growth prospects in the South-Asian region. A sample of 8South Asian countries for the period 1990–2017 is being considered for this study. The study uses various econometrics tools such as the Johansen-Fisher Panel cointegration test, Panel FMOLS, and PDOLS to ascertain the long-run and short-run dynamics among the variables under consideration. We found that the long-run and short-run relationship exists among foreign aid, economic growth with other macroeconomic variables. Further, using the Granger causality framework, we found that unidirectional causality exists between foreign aid to economic growth, FDI inflows to economic growth, and there is no short-run causality between remittances and economic growth. On the other hand, we confirmed that the existence of long-run causality between foreign aid to economic growth and FDI to economic growth.

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