Does infrastructural development allure foreign direct investment? The role of Belt and Road Initiatives

Abstract

PurposeChina's Belt and Road Initiative (BRI) is the most ambitious investment strategy for infrastructural development belonging to the significant potential for stimulating regional economic growth in Asia, Europe and Africa. This study aims to investigate the impact of infrastructure on spurring inward foreign direct investment (FDI) within the purview of human capital, GDP per capita, foreign aid, trade, domestic investment, population and institutional quality in BRI countries.Design/methodology/approachIn doing so, the authors analyze panel data from 2000 to 2019 within the framework of the system generalized method of movement (GMM) approach for 66 BRI countries from Europe, Asia, Africa and the Middle East.FindingsThe investigated results demonstrate that aggregate and disaggregate infrastructure indices, e.g. transport, telecommunications, financial and energy infrastructures, are the driving forces in attracting foreign direct investment (FDI) in the BRI countries. In addition, control variables (i.e. institutional quality, human capital, trade, domestic investment, foreign aid and GDP per capita) play an essential role in spurring FDI inflows.Originality/valueThe authors’ study uniquely investigates both the pre- (2000–2012) and post- (2013–2019) BRI scenarios using the aggregate and disaggregate infrastructural components from the perspectives of full and clustered sample regions, such as Asia, Europe, Africa and the Middle East. The study provides several policy implications.

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“…Similarly, Jehuri et al (2019) and Owusu- Manu et al (2019) found a positive impact of infrastructure on Ghana's economic growth. Additionally, Rehman, Islam, and Sohag (2022) highlight the role of transport infrastructure in attracting FDI and fostering economic growth, while Nketiah-Amponsah and Sarpong (2019) emphasize the dynamic relationship between FDI and infrastructure, promoting regional economic development. Moreover, Irshad, Mehr-un-Nisa, and Ghafoor (2023) underscore the importance of infrastructure for economic growth in low-middle-income countries.…”

The Chinese belt and road initiative: development project with strings attached?

“…It is also argued that FDI often produces externalities in the form of technology transfers (Carkovic and Levine, 2002) and productivity spillovers (Suyanto et al , 2009), which allow receiving countries to catch up with technologically more advanced economies. Also, the argument goes, FDI can contribute to the development of infrastructure in the receiving country, which, in turn, attracts even more FDI (Rehman et al , 2022). This is because such infrastructure developments may also benefit the domestic economy by improving connectivity and reducing transaction costs, which attracts further investment.…”

“…This study offers some important practical and policy-related implications both for countries that signed the MoU and joined the BRI, for third countries that have not joined the initiative, and for China itself. As highlighted above, many of the countries along the BRI are in great need of FDI for their often-ailing infrastructure (Rehman et al , 2022). They perceive the BRI as a potential way of acquiring both capital and economic integration, and the BRI’s large-scale infrastructure investments have the potential to structurally transform BRCs’ economies.…”

Does green innovation moderate between FDI and environmental sustainability? Empirical evidence from South Asia

“…FDI has been hailed as the key economic growth tool, with researchers and practitioners seeing it as a reliable way for host economies to gain access to new technologies while also creating new jobs. The aggregate and sub-indices of infrastructure significantly promote the export and FDI inflow in the long run [3,4]. FDI improves industry processes in host countries but may have negative effects on the natural environment.…”