The nexus between FDI and human development: non-linear evidence from South Asia

Abstract

Purpose

Human development is critical for fostering economic growth and development. Given the importance of human development, this study examines the asymmetric impact of Foreign Direct Investment (FDI) on human development by decomposing total FDI into positive and negative shocks in five South Asian countries from 1990 to 2021.

Design/methodology/approach

The study uses the panel Non-linear Autoregressive Distributive Lag model (NARDL) to examine asymmetric long and short-run effects of FDI. Further, the direction of causality between HDI and FDI is examined using the recently developed (Joudis et al., 2021) panel granger non-causality test.

Findings

The positive and negative FDI shocks positively impact HDI, but positive shocks have a higher effect than negative shocks in the long run. The Wald Test rejects the long-run symmetric effect, confirming the asymmetric relationship between FDI and human development. More importantly, causality results reveal the FDI-led HDI and HDI-led FDI development in South Asia.

Practical implications

FDI should be encouraged by formulating a well-tailored policy intervention. The development policies should be interlinked with FDI policies. Absorptive capacities such as infrastructure facilities, a threshold level of human capital, and institutions should be strengthened to attract higher FDI into high-tech sectors.

Originality/value

Unlike the previous empirical studies, this study provides asymmetric evidence between FDI and human development in South Asia.

Peer review

The peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-05-2023-0380.

Citation

Dash, R., Gupta, D. and Mishra, A. (2024), "The nexus between FDI and human development: non-linear evidence from South Asia", International Journal of Social Economics, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJSE-05-2023-0380