IMPACT OF FDI ON TECHNOLOGICAL INNOVATION AND ECONOMIC GROWTH IN DEVELOPING- ASIAN COUNTRIES

Abstract

Foreign direct investment (FDI) has been used as a catalyst for economic growth in both developing and developed countries. While the global FDI to developing countries increases over time, competition among countries to attract FDI intensifies. One critical question is whether FDI has a positive impact on developing economies. This study aims to examine the effect of FDI inflows on technological innovation and economic growth in developing Asian countries. Quantitative data analysis based on unit root test, cointegration test, and Vector Error Correction Model (VECM) using data from 10 South Asian developing countries (China, India, Iran, Pakistan, Sri Lanka, Republic of Korea, Thailand, Saudi Arabia, Turkey, and Vietnam) over the 2010-2019 period. According to the study’s findings, FDI has a long-run relationship with technological innovation, but no long-run relationship could be found between FDI and economic growth. The current study contributes to the debate over how FDI can assist developing economies in meeting its Sustainable Development Goals (SDGs) because FDI is considered a principal resource for financing sustainable development goals. It is suggested that the government should take a more proactive role in encouraging innovation and then integrating it with economic growth. The growth in the number of innovations would therefore become a factor inviting more FDI.