FOREIGN DIRECT INVESTMENT AND EMPLOYMENT AS PRIMARY LONG-RUN DRIVERS OF ECONOMIC GROWTH

Tangguh Pratysto; Mesi Herawati; Iqbal Banyu Sunarya

doi:10.22437/jiituj.v10i1.48002

Authors

Tangguh Pratysto Universitas Diponegoro https://orcid.org/0000-0003-0338-0216
Mesi Herawati Universitas Diponegoro https://orcid.org/0009-0004-0592-6993
Iqbal Banyu Sunarya Universitas Diponegoro https://orcid.org/0009-0006-0350-5380

DOI:

https://doi.org/10.22437/jiituj.v10i1.48002

Keywords:

Economic Growth, Foreign Direct Investment, Inflation, Trade Openness, Unemployment

Abstract

Although the macroeconomic determinants of growth are studied at length, there is still a lack of study on many aspects of the BRICS, which now includes the new members Egypt, Ethiopia, Iran, Saudi Arabia, the UAE, and Indonesia, especially about the simultaneous consideration of unemployment along with FDI, trade openness, and inflation in a single panel model. The objective of this paper is to investigate the short- and long-run influence on GDP growth by accounting for heterogeneity within this community. Quantitative panel data analysis employing Panel ARDL with PMG estimator on secondary annual data (1991–2023) of 11 BRICS countries obtained from World Bank World Development Indicators. While FDI is positive and significant in the long run, unemployment is negative and significant (-0.217, p=0.008). Trade openness and Inflation are positive but not statistically significant. In the short run, unemployment is negative (-1.528, p=0.002); the error-correction term is -0.681 (p < 0.001), implying that 68% of the adjustment occurs annually. FDI and unemployment are identified as major long-run determinants, with rapid equilibrium adjustment. The innovation lies in the extended BRICS panel and the more recent disclosure of more potent effects of unemployment on structural turns. To this end, policies should be oriented toward promoting FDI and reducing unemployment to ensure sustained and inclusive growth, and institutional improvements would further enhance the gains from trade.

Downloads

Download data is not yet available.

Author Biographies

Tangguh Pratysto, Universitas Diponegoro

Department of Economics and Development Studies, Faculty of Economics and Business, Universitas Diponegoro, Jawa Tengah, Indonesia

Mesi Herawati, Universitas Diponegoro

Department of Economics and Development Studies, Faculty of Economics and Business, Universitas Diponegoro, Jawa Tengah, Indonesia

Iqbal Banyu Sunarya, Universitas Diponegoro

Department of Economics and Development Studies, Faculty of Economics and Business, Universitas Diponegoro, Jawa Tengah, Indonesia

References

Abdelkawy, N. A. (2024). Diversification and the resource curse: An econometric analysis of GCC countries. Economies, 12(11), Article 287. https://doi.org/10.3390/economies12110287.

Adegboye, F. B., Osabohien, R., Olokoyo, F. O., Matthew, O., & Adediran, O. (2020). Institutional quality, foreign direct investment, and economic development in sub-Saharan Africa. Humanities and Social Sciences Communications, 7(1), Article 52. https://doi.org/10.1057/s41599-020-0529-x.

Ahuja, D., & Pandit, D. (2020). Public expenditure and economic growth: Evidence from the developing countries. FIIB Business Review, 9(3), 228–236. https://doi.org/10.1177/2319714520938901.

Alnsour, J., Arabeyyat, A. R., Alnsour, A. J., & Almasria, N. A. (2024). The impact of financial development, foreign direct investment, and trade openness on carbon dioxide emissions in Jordan: An ARDL and VECM analysis approach. Journal of Risk and Financial Management, 17(11), Article 490. https://doi.org/10.3390/jrfm17110490.

Asensio, M., & Ferreira, C. (2024). Labor-market reforms in Southern Europe: From protection to flexibility. In P. C. Kostis (Ed.), Economic recessions: Navigating economies in a volatile world and the path for economic resilience and development. IntechOpen. https://doi.org/10.5772/intechopen.1004623.

Awad, A. (2019). Economic globalisation and youth unemployment–evidence from African countries. International Economic Journal, 33(2), 252–269. https://doi.org/10.1080/10168737.2019.1604787.

Azam, M., & Khan, S. (2022). Threshold effects in the relationship between inflation and economic growth: Further empirical evidence from the developed and developing world. International Journal of Finance & Economics, 27(4), 4224–4243. https://doi.org/10.1002/ijfe.2368.

Balsalobre-Lorente, D., Driha, O. M., Halkos, G., & Mishra, S. (2022). Influence of growth and urbanization on CO₂ emissions: The moderating effect of foreign direct investment on energy use in BRICS. Sustainable Development, 30(1), 227–240. https://doi.org/10.1002/sd.2240.

Bamidele, S. (2025). BRICS revolution: The global agrarian shift sparked by emerging economies. India Quarterly, 81(1), 43–58. https://doi.org/10.1177/09749284241307937.

Burange, L. G., Ranadive, R. R., & Karnik, N. N. (2019). Trade openness and economic growth nexus: A case study of BRICS. Foreign Trade Review, 54(1), 1–15. https://doi.org/10.1177/0015732518810902.

Büttner, N., Heemann, M., De Neve, J.-W., Verguet, S., Vollmer, S., & Harttgen, K. (2023). Economic growth and childhood malnutrition in low- and middle-income countries. JAMA Network Open, 6(11), Article e2342654. https://doi.org/10.1001/jamanetworkopen.2023.42654.

Castro, R., Clementi, G. L., & MacDonald, G. (2004). Investor protection, optimal incentives, and economic growth. The Quarterly Journal of Economics, 119(3), 1131–1175. https://doi.org/10.1162/0033553041502171.

Caushi, A. (2025). Assessing the impact of EU integration on economic growth forecasts using artificial neural network models. Jurnal Ilmiah Ilmu Terapan Universitas Jambi, 9(4), 1378–1390. https://doi.org/10.22437/jiituj.v9i4.43085.

Chen, F., & Jiang, G. (2023). The impact of institutional quality on foreign direct investment: Empirical analysis based on mediating and moderating effects. Economic Research-Ekonomska Istraživanja, 36(2), Article 2134903. https://doi.org/10.1080/1331677X.2022.2134903.

Chikwira, C., & Jahed, M. I. (2024). Analysis of exchange rate stability on the economic growth process of a developing country: The case of South Africa from 2000 to 2023. Economies, 12(11), Article 296. https://doi.org/10.3390/economies12110296.

Cohen, J. (1992). A power primer. Psychological Bulletin, 112(1), 155–159. https://doi.org/10.1037/0033-2909.112.1.155.

Di Tella, R., & MacCulloch, R. (2005). The consequences of labor market flexibility: Panel evidence based on survey data. European Economic Review, 49(5), 1225–1259. https://doi.org/10.1016/j.euroecorev.2003.11.002.

Emery, J. H., Ferrer, A., & Green, D. (2012). Long-term consequences of natural resource booms for human capital accumulation. ILR Review, 65(3), 708–734. https://doi.org/10.1177/001979391206500310.

Estevão, M. M., & Tsounta, E. (2011). Has the Great Recession raised U.S. structural unemployment? (IMF Working Paper No. 11/105). International Monetary Fund. https://doi.org/10.5089/9781455260409.001.

Fan, S., & Chan-Kang, C. (2005). Road development, economic growth, and poverty reduction in China (Research Report No. 138). International Food Policy Research Institute. https://doi.org/10.2499/0896291413RR138.

Fornaro, L., & Wolf, M. (2023). The scars of supply shocks: Implications for monetary policy. Journal of Monetary Economics, 140, S18–S36. https://doi.org/10.1016/j.jmoneco.2023.04.003.

Gallagher, K. S., & Qi, Q. (2021). Chinese overseas investment policy: Implications for climate change. Global Policy, 12(3), 260–272. https://doi.org/10.1111/1758-5899.12952.

Ge, M., Kannaiah, D., Li, J., Khan, N., Shabbir, M. S., Bilal, K., & Tabash, M. I. (2022). Does foreign private investment affect the clean industrial environment? Nexus among foreign private investment, CO₂ emissions, energy consumption, trade openness, and sustainable economic growth. Environmental Science and Pollution Research, 29(18), 26182–26189. https://doi.org/10.1007/s11356-022-18814-x.

Hardy, B., Hill, H. D., & Romich, J. (2019). Strengthening social programs to promote economic stability during childhood. Social Policy Report, 32(2), 1–36. https://doi.org/10.1002/sop2.4.

Hidthiir, M. H. bin, Ahmad, Z., Junoh, M. Z. M., & Yusof, M. F. B. (2024). Dynamics of economic growth in ASEAN-5 countries: A panel ARDL approach. Discover Sustainability, 5(1), Article 145. https://doi.org/10.1007/s43621-024-00351-x.

Joo, B. A., Shawl, S., & Makina, D. (2022). The interaction between FDI, host country characteristics and economic growth? A new panel evidence from BRICS. Journal of Economics and Development, 24(3), 247–261. https://doi.org/10.1108/JED-03-2021-0035.

Ju, P., Anser, M. K., Osabohien, R., Ochuba, O., Ahuru, R. R., & Ashraf, J. (2022). Trade openness, foreign direct investment and sustainable agriculture in Africa. Problemy Ekorozwoju, 17(1), 246–255. https://doi.org/10.35784/pe.2022.1.22.

Kalai, M., Becha, H., & Kamel, H. (2025). Exploring the nexus link of foreign direct investment inflows and openness on economic growth: Evidence from BRICS economies. Journal of East-West Business, 31(1), 1–37. https://doi.org/10.1080/10669868.2024.2372768.

Kapçiu, R., Preni, B., Kalluçi, E., & Kosova, R. (2024). Modeling inflation dynamics using the logistic model: Insights and findings. Jurnal Ilmiah Ilmu Terapan Universitas Jambi, 8(1), 364–378. https://doi.org/10.22437/jiituj.v8i1.32605.

Kaulihowa, T., & Adjasi, C. (2018). FDI and income inequality in Africa. Oxford Development Studies, 46(2), 250–265. https://doi.org/10.1080/13600818.2017.1381233.

Kelmendi, J., Beqiri, A., Shuajibi, E., Talibzade, O., & Ketners, K. (2025). The economic impact of geopolitical tensions on global trade and supply networks. Jurnal Ilmiah Ilmu Terapan Universitas Jambi, 9(2), 839–855. https://doi.org/10.22437/jiituj.v9i2.39481.

Knoerich, J. (2017). How does outward foreign direct investment contribute to economic development in less advanced home countries? Oxford Development Studies, 45(4), 443–459. https://doi.org/10.1080/13600818.2017.1283009.

Le, Q. H., Do, Q. A., Pham, H. C., & Nguyen, T. D. (2021). The impact of foreign direct investment on income inequality in Vietnam. Economies, 9(1), Article 27. https://doi.org/10.3390/economies9010027.

Li, S. (2023). The gig economy and labour market dynamics. Advances in Economics, Management and Political Sciences, 61(1), 275–281. https://doi.org/10.54254/2754-1169/61/20231285.

Lieb, L., & Schuffels, J. (2022). Inflation expectations and consumer spending: The role of household balance sheets. Empirical Economics, 63(5), 2479–2512. https://doi.org/10.1007/s00181-022-02222-8.

Mallick, S. K., & Sousa, R. M. (2013). Commodity prices, inflationary pressures, and monetary policy: Evidence from BRICS economies. Open Economies Review, 24(4), 677–694. https://doi.org/10.1007/s11079-012-9261-5.

Mansfield, E. D., & Reinhardt, E. (2008). International institutions and the volatility of international trade. International Organization, 62(4), 621–652. https://doi.org/10.1017/S0020818308080223.

Meager, N. (2009). The role of training and skills development in active labour market policies. International Journal of Training and Development, 13(1), 1–18. https://doi.org/10.1111/j.1468-2419.2008.00312.x.

Minh, V. T. H., & Trinh, P. T. T. (2023). The impact of FDI on economic growth in developing countries: The role of FDI inflow and trade openness. The Economics and Finance Letters, 10(3), 216–229. https://doi.org/10.18488/29.v10i3.3519.

Mo, Y., Liao, K., & Wang, J. (2024). Analysis of current research in the field of sustainable employment based on latent Dirichlet allocation. Sustainability, 16(11), Article 4557. https://doi.org/10.3390/su16114557.

Muharremi, O., Petanaj, M., & Hoxhaj, M. (2025). Examining the impact of foreign direct investment on sustainable economic growth: A longitudinal perspective. Corporate Governance and Sustainability Review, 9(3), 155–169. https://doi.org/10.22495/cgsrv9i3p13.

Musibau, H. O., Yusuf, A. H., & Gold, K. L. (2019). Endogenous specification of foreign capital inflows, human capital development and economic growth: A study of pool mean group. International Journal of Social Economics, 46(3), 454–472. https://doi.org/10.1108/IJSE-04-2018-0168.

Okwu, A. T., Oseni, I. O., & Obiakor, R. T. (2020). Does foreign direct investment enhance economic growth? Evidence from 30 leading global economies. Global Journal of Emerging Market Economies, 12(2), 217–230. https://doi.org/10.1177/0974910120919042.

Ouedraogo, R., & Marlet, E. (2018). Foreign direct investment and women empowerment: New evidence on developing countries (IMF Working Paper No. 18/25). International Monetary Fund. https://doi.org/10.5089/9781484339732.001.

Phung Thanh, Q. (2022). Economic effects of green bond market development in Asian economies. The Journal of Risk Finance, 23(5), 480–497. https://doi.org/10.1108/JRF-08-2022-0216.

Radmehr, R., Ali, E. B., Shayanmehr, S., Saghaian, S., Darbandi, E., Agbozo, E., & Sarkodie, S. A. (2022). Assessing the global drivers of sustained economic development: The role of trade openness, financial development, and FDI. Sustainability, 14(21), Article 14023. https://doi.org/10.3390/su142114023.

Rahman, M. M., & Islam, M. E. (2023). Does trade openness affect taxation? Evidence from BRICS countries. Millennial Asia. Advance online publication. https://doi.org/10.1177/09763996231199310.

Rani, R., & Kumar, N. (2019). On the causal dynamics between economic growth, trade openness and gross capital formation: Evidence from BRICS countries. Global Business Review, 20(3), 795–812. https://doi.org/10.1177/0972150919837079.

Santra, S. (2017). The effect of technological innovation on production-based energy and CO₂ emission productivity: Evidence from BRICS countries. African Journal of Science, Technology, Innovation and Development, 9(5), 503–512. https://doi.org/10.1080/20421338.2017.1308069.

Seti, T. M., Mazwane, S., & Christian, M. (2025). Financial openness, trade openness, and economic growth nexus: A dynamic panel analysis for emerging and developing economies. Journal of Risk and Financial Management, 18(2), Article 78. https://doi.org/10.3390/jrfm18020078.

Si, S., Ahlstrom, D., Wei, J., & Cullen, J. (2021). Introduction: Business, entrepreneurship and innovation toward poverty reduction. In Business, entrepreneurship and innovation toward poverty reduction (pp. 1–20). Routledge. https://doi.org/10.4324/9781003176107.

Spahija, D., Li, W., Muhammedov, M., Nizamov, A., & Iskhakova, S. (2025). Study of the impact of foreign investment on economic development in emerging markets. Jurnal Ilmiah Ilmu Terapan Universitas Jambi, 9(3), 1025–1036. https://doi.org/10.22437/jiituj.v9i3.42850.

Storonyanska, I., Benovska, L., Patytska, K., Ivashko, O., & Chulipa, I. (2025). Redesigning sustainable vocational education systems to respond to global economic trends and labor market demands: Evidence from EU countries on SDGs. Sustainability, 17(21), Article 9530. https://doi.org/10.3390/su17219530.

Watson, A. (2016). Trade openness and inflation: The role of real and nominal price rigidities. Journal of International Money and Finance, 64, 137–169. https://doi.org/10.1016/j.jimonfin.2016.02.002.

Wicaksana, T., & Widodo, W. (2024). The nexus between trade openness and environmental degradation: A VECM analysis. Jurnal Ilmiah Ilmu Terapan Universitas Jambi, 8(2). https://doi.org/10.22437/jiituj.v8i2.36595.

Wiredu, J., Nketiah, E., & Adjei, M. (2020). The relationship between trade openness, foreign direct investment and economic growth in West Africa: Static panel data model. Journal of Human Resource and Sustainability Studies, 8(1), 18–34. https://doi.org/10.4236/jhrss.2020.81002.

Yasmeen, R., Tao, R., & Shah, W. U. H. (2023). Economic growth and environmental technology simultaneously important for reducing energy poverty and ecological footprint in E7 economies: Do political institutions play a role? Environmental Science and Pollution Research, 30(24), 65102–65118. https://doi.org/10.1007/s11356-023-26923-4.

Younsi, M., & Nafla, A. (2019). Financial stability, monetary policy, and economic growth: Panel data evidence from developed and developing countries. Journal of the Knowledge Economy, 10(1), 238–260. https://doi.org/10.1007/s13132-017-0453-5.

Zekarias, S. M. (2016). The impact of foreign direct investment (FDI) on economic growth in Eastern Africa: Evidence from panel data analysis. Applied Economics and Finance, 3(1), 145–160. https://doi.org/10.11114/aef.v3i1.1317.

Zhao, S., Zhang, Y., Iftikhar, H., Ullah, A., Mao, J., & Wang, T. (2022). Dynamic influence of digital and technological advancement on sustainable economic growth in Belt and Road Initiative (BRI) countries. Sustainability, 14(23), Article 15782. https://doi.org/10.3390/su142315782.