Open AccessForeign Direct Investment, Sovereign Debt and Growth: Evidence for the Euro Area
Author(s) -
Ai-Lian Tan,
Normaz Wana Ismail
Publication year - 2015
Publication title -
american journal of trade and policy
Language(s) - English
Resource type - Journals
eISSN - 2313-4755
pISSN - 2313-4747
DOI - 10.18034/ajtp.v2i2.383
Subject(s) - foreign direct investment , monetary economics , debt to gdp ratio , internal debt , external debt , sovereign debt , debt levels and flows , economics , debt , international economics , financial system , stimulus (psychology) , sovereignty , business , finance , macroeconomics , political science , psychology , psychotherapist , politics , law
In light of the global financial crisis, an extensive implementation of fiscal stimulus packages has triggered an enormous soared of public debt in Europe. While grappling with this albatross, the high debt level has aroused the paramount interest of this study casts doubt on the role of sovereign debt towards the linkage between FDI and economic growth. To this end, this study aims to assess the effects of debt on growth through the channel of FDI in European countries by applying Pooled Mean Group (PMG) estimation. The empirical findings, by and large, suggest that a lower growth performance is evident with the association of high government debt through foreign investment. In a nutshell, over borrowing of public finance would crowd out private investment and hence stifle economic growth.
JEL Classifications Code: F21, F34, F43, G01