JEFMS Journal

ABSTRACT:

This research examines the role of financial development and regional integration to attain inclusive growth in selected BRI countries from 2000 to 2020. Existing studies for BRI focused on economic growth, infrastructure development and environmental sustainability. A few studies indicated pro-poor growth, but no empirical study was found regarding inclusive growth. Economic growth is inclusive in a sense to promote employment level, reduction in poverty and inequality along with increased accessibility and social security. To incorporate these factors, this study calculates a detailed inclusive growth index incorporating its four dimensions using principal component analysis (PCA) and applies Pooled OLS and two stages least squares (2SLS) to overcome the endogeneity problem. The results shows that FD, TO and FDI are significant in explaining inclusive growth in selected countries. Moreover, four pillars of inclusive growth are individually analyzed to attain clearer results. These findings indicate that regional integration along with FD, TO and FDI increases economic growth with employment level, reduces poverty and inequality and increases accessibility with social protection. Therefore, the study recommends that outward FDI flow from China towards BRI emerging countries is crucial for employment generation with reduced poverty and inequality and improves accessibility and social security. Domestically, Host countries must stabilize their economies politically, socially, and culturally to attain maximum gain from this FDI inflow for sustainability.

KEYWORDS:

Inclusive growth, foreign direct investment, Financial Development, BRI

REFERENCES:

1) Abbas, H. S. M., Gillani, S., Ullah, S., Raza, M. A. A., & Ullah, A. (2020). Nexus between governance and socioeconomic factors on public service fragility in Asian economies. Social Science Quarterly, 101(5), 1850-1868.

2) Adegboye, F. B., Osabohien, R., Olokoyo, F. O., & Matthew, O. A. (2020b). Foreign direct investment, globalisation challenges and economic development: an African sub-regional analysis. International Journal of Trade and Global Markets, 13(4), 414-433.

3) Adegboye, F.B., Osabohien, R., Olokoyo, F.O., Matthew, O., & Adediran, O. (2020a). Institutional quality, foreign direct investment, and economic development in sub-Saharan Africa. Humanities and Social Sciences Communication, 7, 38. doi:10.1057/ s41599-020-0529-x4

4) Akadiri, A. C., Gungor, H., Akadiri, S. S., & Bamidele‐Sadiq, M. (2020). Is the causal relation between foreign direct investment, trade, and economic growth complement or substitute? The case of African countries. Journal of Public Affairs, 20(2), e2023.

5) Alfaro, L., Chanda, A., Kalemli-Ozcan, S., & Sayek, S. (2010). Does foreign direct investment promote growth? Exploring the role of financial markets on linkages. Journal of development Economics, 91(2), 242-256.

6) An, H., Razzaq, A., Haseeb, M., & Mihardjo, L. W. (2021). The role of technology innovation and people’s connectivity in testing environmental Kuznets curve and pollution heaven hypotheses across the Belt and Road host countries: new evidence from Method of Moments Quantile Regression. Environmental Science and Pollution Research, 28, 5254-5270.

7) An, H., Razzaq, A., Nawaz, A., Noman, S. M., & Khan, S. A. R. (2021). Nexus between green logistic operations and triple bottom line: evidence from infrastructure-led Chinese outward foreign direct investment in Belt and Road host countries. Environmental Science and Pollution Research, 28(37), 51022-51045.

8) Anand, R., Mishra, M. S., & Peiris, M. S. J. (2013). Inclusive growth: Measurement and determinants. International Monetary Fund.

9) Azman-Saini, W. N. W., & Law, S. H. (2010). FDI and economic growth: New evidence on the role of financial markets. Economics letters, 107(2), 211-213.

10) Baltabaev, B. (2014a). Foreign Direct Investment and Total Factor Productivity Growth: New Macro-Evidence. The World Economy, 37(2), 311–334. https://doi.org/10.1111/twec.12115

11) Barrell, R., & Nahhas, A. (2018). Economic Integration and Bilateral FDI stocks: the impacts of NAFTA and the EU.

12) Beugelsdijk, S., Smeets, R., & Zwinkels, R. (2008). The impact of horizontal and vertical FDI on host's country economic growth. International business review, 17(4), 452-472.

13) Bruno, M., Ravallion, M., & Squire, L. (1996). Equity and growth in developing countries: old and new perspectives on the policy issues.

14) Dong, K., Dong, X., & Jiang, Q. (2020). How renewable energy consumption lower global CO2 emissions? Evidence from countries with different income levels. The World Economy, 43(6), 1665-1698.

15) Dong, K., Jiang, H., Sun, R., & Dong, X. (2019). Driving forces and mitigation potential of global CO2 emissions from 1980 through 2030: Evidence from countries with different income levels. Science of the Total Environment, 649, 335-343.

16) Dutta, C. B., Haider, M. Z., & Das, D. K. (2017). Dynamics of economic growth, investment and trade openness: Evidence from Bangladesh. South Asian Journal of Macroeconomics and Public Finance, 6(1), 82-104.

17) Gohou, G., & Soumaré, I. (2012). Does foreign direct investment reduce poverty in Africa and are there regional differences?. World development, 40(1), 75-95.

18) Habito, C. F. (2009). Patterns of inclusive growth in developing Asia: Insights from an enhanced growth-poverty elasticity analysis.

19) Huang, C. H., Teng, K. F., & Tsai, P. L. (2010). Inward and outward foreign direct investment and poverty: East Asia vs. Latin America. Review of World Economics, 146, 763-779.

20) Huang, Y. (2016). Understanding China's Belt & Road initiative: motivation, framework and assessment. China Economic Review, 40, 314-321.

21) Hussain, M. E., & Haque, M. (2016). Foreign direct investment, trade, and economic growth: An empirical analysis of Bangladesh. Economies, 4(2), 7.

22) Jiang, M., Luo, S., & Zhou, G. (2020). Financial development, OFDI spillovers and upgrading of industrial structure. Technological Forecasting and Social Change, 155, 119974.

23) Jude, C., & Levieuge, G. (2017). Growth effect of foreign direct investment in developing economies: The role of institutional quality. The World Economy, 40(4), 715-742.

24) Kodzi, E. (2018). Live and let live: Africa’s response options to China’s BRI. China's Belt and Road Initiative: Changing the Rules of Globalization, 155-178.

25) Koojaroenprasit, S. (2012). The impact of foreign direct investment on economic growth: A case study of South Korea. International Journal of Business and Social Science, 3(21).

26) Lee, C. C., & Chang, C. P. (2009). FDI, financial development, and economic growth: international evidence. Journal of applied economics, 12(2), 249-271.

27) Lee, P. T. W., Hu, Z. H., Lee, S. J., Choi, K. S., & Shin, S. H. (2018). Research trends and agenda on the Belt and Road (B&R) initiative with a focus on maritime transport. Maritime Policy & Management, 45(3), 282-300.

28) Li X, Sohail S, Majeed MT, Ahmad W (2021) Green logistics, economic growth, and environmental quality: evidence from one belt and road initiative economies Environ Sci Pollut Res 1–11

29) Liao, H., Chi, Y., & Zhang, J. (2020). Impact of international development aid on FDI along the Belt and Road. China Economic Review, 61, 101448.

30) Mansi, E., Hysa, E., Panait, M., & Voica, M. C. (2020). Poverty—A challenge for economic development? Evidences from Western Balkan countries and the European Union. Sustainability, 12(18), 7754.

31) MOFCOM. (2019), “Statistical Bulletin of China’s Outward Foreign Direct Investment”,Http://Hzs.Mofcom.Gov.Cn/Article/Date 201512/20151201223578.Shtml,

32) National Development and Reform Commission (NDRC), Ministry of Foreign Affairs (MFA), & Ministry of Commerce (MOC), in: Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-century Maritime Silk Road. Beijing, China, 2015. Available at, en.ndrc.gov.cn.

33) Oluseye, I. C., & Gabriel, A. A. (2017). Determinants of inclusive growth in Nigeria: An ARDL approach. American Journal of Economics, 7(3), 97-109.

34) Omri, A., Nguyen, D. K., & Rault, C. (2014). Causal interactions between CO2 emissions, FDI, and economic growth: Evidence from dynamic simultaneous-equation models. Economic Modelling, 42, 382-389.

35) Osabohien, R., Iqbal, B. A., Osabuohien, E. S., Khan, M. K., & Nguyen, D. P. (2022). Agricultural trade, foreign direct investment and inclusive growth in developing countries: evidence from West Africa. Transnational Corporations Review, 14(3), 244-255.

36) Pegkas, P. (2015). The impact of FDI on economic growth in Eurozone countries. The Journal of Economic Asymmetries, 12(2), 124–132. https://doi.org/10. 1016/j.jeca.2015.05.001

37) Rauf, A., Liu, X., Amin, W., Ozturk, I., Rehman, O. U., & Hafeez, M. (2018). Testing EKC hypothesis with energy and sustainable development challenges: a fresh evidence from belt and road initiative economies. Environmental Science and Pollution Research, 25, 32066-32080.

38) Rauniyar, G. P., & Kanbur, R. (2010). Inclusive development: Two papers on conceptualization, application, and the ADB perspective.

39) Rehman, F. U., Ding, Y., Noman, A. A., & Khan, M. A. (2020). China’s outward foreign direct investment and exports diversification: an asymmetric analysis. Journal of Chinese Economic and Foreign Trade Studies, 13(2), 45-69.

40) Sakyi, D., Commodore, R., & Opoku, E. E. O. (2015). Foreign direct investment, trade openness and economic growth in Ghana: An empirical investigation. Journal of African Business, 16(1-2), 1-15.

41) Sokang, K. (2018). The impact of foreign direct investment on the economic growth in Cambodia: Empirical evidence. International Journal of Innovation and Economic Development, 4(5), 31-38.

42) Solow, R. M. (1956). A contribution to the theory of economic growth. The quarterly journal of economics, 70(1), 65-94.

43) Stamatiou, P., Dritsaki, C., & Niklis, D. (2021). CO2 Emissions, Energy Consumption, Economic Growth, Trade, and Urbanization in Greece. In Advances in Longitudinal Data Methods in Applied Economic Research: 2020 International Conference on Applied Economics (ICOAE) (pp. 379-389). Springer International Publishing.

44) Sumner, A. (2005). Is foreign direct investment good for the poor? A review and stocktake. Development in Practice, 15(3-4), 269-285.

45) Tella, S. A., & Alimi, O. Y. (2016). Determinants of inclusive growth in Africa: Role of health and demographic changes. African Journal of Economic Review, 4(2), 138-146.

46) Ullah, A., Pinglu, C., Ullah, S., & Hashmi, S. H. (2021). Nexus of regional integration, socioeconomic determinants and sustainable development in belt and road initiative countries. PloS one, 16(7), e0254298.

47) UNCTAD, 2018b. FDI/MNE Database. New York and Geneva

48) UNCTAD. (2018a), “UNCTAD world investment report”.

49) Usman, M., Makhdum, M. S. A., & Kousar, R. (2021). Does financial inclusion, renewable and non-renewable energy utilization accelerate ecological footprints and economic growth? Fresh evidence from 15 highest emitting countries. Sustainable cities and society, 65, 102590.

50) Wasti, S. K. A., & Zaidi, S. W. (2020). An empirical investigation between CO2 emission, energy consumption, trade liberalization and economic growth: A case of Kuwait. Journal of Building Engineering, 28, 101104.

51) Whajah, J., Bokpin, G. A., & Kuttu, S. (2019). Government size, public debt and inclusive growth in Africa. Research in International Business and Finance, 49, 225-240.

52) Zhang, H., Zhang, X., Zhao, C., & Yuan, J. (2021). Electricity consumption and economic growth in BRI countries: Panel causality and policy implications. Emerging Markets Finance and Trade, 57(3), 859-874.