The Impact of Foreign Direct Investment on Economic Growth in Brics Countries

Abstract

In this study, we examine the relationship between FDI inflows and economic growth in the BRICS countries and the role of the financial sector therein. We examine FDI, financial development, the interaction between FDI and finance, and nonlinear terms of financial variables using the PMG model. According to empirical findings, the contribution of FDI to BRICS s economic growth is very marginal. When the interaction between FDI and financial development is added to the model, it produces a substantial impact. The square term of the financial variable is added to test for non-linearity in the finance-growth nexus, and the outcome suggests that excessive finance is harmful to BRICS economies. Using the Panel-TARDL model, we evaluate the credit-growth nexus, as well as the threshold effect and dynamic asymmetry of finance. The significant threshold has been identified at a credit-to-GDP ratio of 60%, which means that credit has a significant contribution to economic growth at a maximum of 60% of GDP, after which the effect is negative newline