Moderating Effect of Governance Indicators on the Effect of Foreign Direct Investment on Economic Growth of Developing Countries in Asia 2002 - 2021

Abstract

This study examines the moderating effect of governance indicators on the relationship between foreign direct investment (FDI) and economic growth in developing Asian countries from 2002 to 2021. The study investigates whether different dimensions of governance, such as political stability, regulatory quality, and corruption control, can influence the economic outcomes of foreign direct investment (FDI). The objective is to provide a detailed and nuanced understanding of the manner in which governance affects the efficacy of FDI as a tool for economic development in 29 Asian developing countries. The methodology entails a quantitative analysis utilizing panel data from 29 Asian developing countries. The study employs advanced econometric techniques, including fixed effects and random effects models, to analyse the data, thereby accounting for the heterogeneity of countries' economic conditions and governance structures. The Worldwide Governance Indicators are employed in conjunction with FDI and GDP data in order to assess the interplay between governance and economic growth. The findings reveal that FDI significantly enhances long-term economic growth in developing Asian countries. Effective utilization of FDI is strongly associated with stable political environments, robust infrastructure, and a skilled workforce. Additionally, a conducive regulatory environment is critical for attracting and maintaining foreign investment. Based on these insights, the study recommends strengthening governance frameworks to maximize the economic benefits of FDI, suggesting that systemic enhancements in governance could lead to more effective absorption and utilization of foreign investment for sustainable development.

Keywords: Governance Indicators, Foreign Direct Investment, Economic Growth