Impact of Foreign Direct Investment on Economic Growth A Comparative Empirical Analysis of BRICS Countries

Abstract

The increasing globalization of economies has led to a significant rise in cross-border capital flows, with Foreign Direct Investment (FDI) emerging as a crucial driver of economic growth. FDI not only provides financial resources but also facilitates technology transfer, enhances human capital development, and integrates host countries into global value chains. Developing economies, in particular, seek FDI to bridge investment gaps, boost industrialization, and stimulate economic modernization. The present study investigates the dynamic relationship between FDI inflows, economic growth, and key macroeconomic determinants in the BRICS nations: Brazil, Russia, India, China, and South Africa, over the period 1991 to 2020. The BRICS economies represent some of the world s most dynamic emerging markets, collectively contributing significantly to global GDP and trade. The primary objectives are to examine the impact of FDI on economic growth, identify and evaluate the factors influencing FDI inflows, and analyse the short- and long-term coupling effects between FDI and economic growth. The research aims to fill a significant gap in the literature by focusing on this crucial group of emerging economies, given their economic importance in the world economy in the coming decades. Using an extensive dataset sourced from World Bank Indicators, OECD Statistics, and the Penn World Table (Version 10.0), the study employs Method of Moments Quantile Regression (MMQR) and Wavelet Coherence (WTC) analysis to uncover nuanced insights. The study explicitly accounts for the heterogeneity among BRICS nations by employing the Method of Moments Quantile Regression (MMQR) with fixed effects, a technique recently introduced by Machado and Silva (2019) that effectively addresses cross-sectional dependence and unobserved heterogeneity. It further incorporates wavelet coherence analysis, an innovative approach in the field of economics, to explore short-term and long-term dynamics between FDI inflows and its determinants by mapping