Foreign Direct Investment, Sovereign Debt and Growth: Evidence for the Euro Area

Ai-Lian  Tan; Normaz Wana  Ismail

doi:10.18034/ajtp.v2i2.383

Authors

Ai-Lian Tan Universiti Tunku Abdul Rahman
Normaz Wana Ismail UPM

DOI:

https://doi.org/10.18034/ajtp.v2i2.383

Keywords:

FDI, global financial crisis, sovereign debt, economic growth

Abstract

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

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Author Biographies

Ai-Lian Tan, Universiti Tunku Abdul Rahman

Lecturer, Department of Economics, Faculty of Business and Finance, Universiti Tunku Abdul Rahman, Perak, MALAYSIA

Normaz Wana Ismail, UPM

Associate Professor, Department of Economics, Marketing and Trade Laboratory, Faculty of Economics & Management, Universiti Putra Malaysia; Serdang, MALAYSIA

&

Deputy Director, Agricultural Production, Institute of Agricultural and Food Policy Studies; Universiti Putra Malaysia, Serdang, MALAYSIA

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