Research methods in economics and its implications for capital formation. Issue 1 (31st December 2022)

• Record Type: Journal Article
• Authors: Ameer, Waqar; Xu, Helian; Sohag, Kazi; Halwan, Musaad Mansoor; Amin, Azka
• Is Part Of: Ekonomska istraživanja. Volume 35:Issue 1(2022)
• Page Start: 5536
• Page End: 5555
• Publication Date: 2022-12-31
• Subjects: FDI -- institutional quality -- domestic capital formation -- cross-sectional dependency -- panel data; C23 -- F20 -- F21 -- F23; Economics -- Research -- Periodicals; Economics -- Research; Electronic journals; 330.072
• DOI: 10.1080/1331677X.2022.2030244
• Languages: English
• ISSNs: 1331-677X

Abstract

Abstract: We explore whether public or private capital augments or obstruct Foreign Direct Investment (FDI) inflows by decomposing Domestic Capital Formation (DCF) into private and public capital formation. To this end, we apply Cross-Sectional Autoregressive Distributed Lags (CS-ARDL) approach to analyze panel time-series data. Our empirical results show that public capital crowds in FDI inflows while private capital crowds out FDI inflows. However, institutional quality significantly attracts FDI inflows for less developing economies. We argue that private and public capital possess different attributes; thus, clubbing them together might result in aggregation bias. We observe a strong connection of good institutional quality with private and public capital to augment foreign capital inflows for developing countries in the long run. Besides, our empirical results suggest that returns are high with quality institutions, especially for developing regions. Our result estimations provide several policy implications.