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

Posted: 24 Jul 2015 Last revised: 24 Feb 2017

See all articles by Ai-Lian Tan

Ai-Lian Tan

Tunku Abdul Rahman University - Department of Economics, Faculty of Business and Finance

Normaz Wana Ismail

University Putra Malaysia - Faculty of Economics and Management

Date Written: July 24, 2015

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.

Keywords: FDI; global financial crisis; sovereign debt; economic growth

JEL Classification: F21, F34, F43, G01

Suggested Citation

Tan, Ai-Lian and Ismail, Normaz Wana, Foreign Direct Investment, Sovereign Debt and Growth: Evidence for the Euro Area (July 24, 2015). American Journal of Trade and Policy, Vol. 2, No. 1, 2015, pgs. 51-58. Available at SSRN: https://ssrn.com/abstract=2635334

Ai-Lian Tan (Contact Author)

Tunku Abdul Rahman University - Department of Economics, Faculty of Business and Finance ( email )

Sungai Long Campus Lot PT 21144
Bandar Sg. Long, Cheras, Selangor D.E.,
Bandar Sungai Long, 43000
Malaysia

Normaz Wana Ismail

University Putra Malaysia - Faculty of Economics and Management ( email )

Serdang, Selangor 43400
Malaysia

Register to save articles to
your library

Register

Paper statistics

Abstract Views
522
PlumX Metrics