Informal Sector and International Capital Movement: New Evidence from Some Petroleum Countries
DOI:
https://doi.org/10.2478/eb-2021-0008Keywords:
Informal economy (IE), Foreign direct investment (FDI), Non-linear Autoregressive Distribution Lag (NARDL), International capital movementAbstract
The main aim of this paper is to investigate the effect of the informal economy (IE) on foreign direct investment (FDI) in a sample of petroleum producing countries (Algeria, Norway, the Russian Federation, Saudi Arabia and United States) based on data covering the period of 1991–2018 and using the Non-linear Autoregressive Distribution Lag (NARDL) model. The NARDL model was built separately for each country in the study sample. The main finding of this study is the impact of IE size on FDI inflows in all of the countries in the study sample, even if they are all producing and exporting countries. The empirical results lead to distinguish between two sub-groups. The first sub-group consists of countries whose FDI inflows have been positively affected by positive and negative shocks in the IE. These countries are characterised by a high share of natural resources in their GDP. The second sub-group consists of countries whose inward FDI has been positively affected by negative shocks in the IE and negatively affected by the positive ones. The most common feature of this subgroup is the relative independence of economics from natural resources.References
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Kheng, V., Sun, S., & Anwar, S. (2016). Foreign Direct Investment and Human Capital in Developing Countries: A Panel Data Approach. Economic Change and Restructuring, 50, 341–365. https://doi.org/10.1007/s10644-016-9191-0
Kuvvet, E. (2021). Anti-Corruption Courts and Foreign Direct Investments. International Review of Economics & Finance, 72, 573–582. https://doi.org/10.1016/j.iref.2020.12.019
Kwiatkowski, D., Phillips, P. C.B., Schmidt, P. & Shin, Y. (1992). Testing the null hypothesis of stationarity against the alternative of a unit root: How sure are we that economic time series have a unit root? Journal of Econometrics, 54(1–3), 159–178. https://doi.org/10.1016/0304-4076(92)90104-Y
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Lisi, G. (2015). Unemployment, Underground Economy and Economic Growth In A Matching Model Of Behavioural Economics. International Review of Economics, 63, 159–170. https://doi.org/10.1007/s12232-015-0247-7
Loayza, N. V. (2016). Informality in the Process of Development and Growth. The World Economy, 39(12), 1856–1916. https://doi.org/10.1111/twec.12480
McCloud, N., Delgado, M. S., & Holmes, C. (2018). Does a stronger system of law and order constrain the effects of foreign direct investment on government size? European Journal of Political Economy, 55, 258–283. https://doi.org/10.1016/j.ejpoleco.2018.01.004
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Peres, M., Ameer, W., & Xu, H. (2018). The Impact of Institutional Quality on Foreign Direct Investment Inflows: Evidence for Developed and Developing Countries. Economic Research-Ekonomska Istraživanja, 31(1), 626–644. https://doi.org/10.1080/1331677X.2018.1438906
Phillips, P. C., & Perron, P. (1988). Testing for A Unit Root in Time Series Regression. Biometrika, 75(2), 335–346. https://doi.org/10.1093/biomet/75.2.335
Ramsey, J. B. (1969). Tests for Specification Errors in Classical Linear Least-Squares Regression Analysis. Journal of the Royal Statistical Society Series B (Methodological), 31(2), 350–371. https://doi.org/10.1111/j.2517-6161.1969.tb00796.x
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Ruge, M. (2010). Determinants and Size of The Shadow Economy – A Structural Equation Model. International Economic Journal, 24(4), 511–523. https://doi.org/10.1080/10168737.2010.525988
Sadikova, M., Faisal, F., & Resatoglu, N. G. (2017). Influence of Energy Use, Foreign Direct Investment and Population Growth on Unemployment for Russian Federation. Procedia Computer Science, 120, 706–7011. https://doi.org/10.1016/j.procs.2017.11.299
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Schmerer, H.-J. (2014). Foreign direct investment and search unemployment: Theory and evidence. Int. Review of Economics & Finance, 30, 41–56. https://doi.org/10.1016/j.iref.2013.11.002
Shin, Y., Yu, B., & Greenwood-Nimmo, M. (2014). Modelling Asymmetric Cointegration and Dynamic Multipliers in a Nonlinear ARDL Framework. In Sickles R., Horrace W. (eds) Festschrift in Honour of Peter Schmidt. Springer. https://doi.org/10.1007/978-1-4899-8008-3_9
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Alfalih, A. A., & Bel Hadj, T. (2020). Asymmetric Effects Of Foreign Direct Investment On Employment In An Oil Producing Country: Do Human Capital, Institutions And Oil Rents Matter? Resources Policy, 70, 101919. https://doi.org/10.1016/j.resourpol.2020.101919
Alsan, M., Bloom, D. E., & Canning, D. (2006). The effect of population health on foreign direct investment inflows to low- and middle-income countries. World Development, 34(4), 613–630. https://doi.org/10.1016/j.worlddev.2005.09.006
Apergis, N., Lyroudi, K., & Vamvakidis, A. (2008). The relationship between foreign direct investment and economic growth: evidence from transition countries. Transition Studies Review, 15, 37–51. https://doi.org/10.1007/s11300-008-0177-0
Asiedu, E., & Lien, D. (2011). Democracy, foreign direct investment and natural resources. Journal of International Economics, 84(1), 99–111. https://doi.org/10.1016/j.jinteco.2010.12.001
Awunyo-Vitor, D., & Sackey, R. A. (2018). Agricultural sector foreign direct investment and economic growth in Ghana. Journal of Innovation and Entrepreneurship, 7(1), 1–15.
Bayar, Y., Remeikiene, R., Androniceanu, A., Gaspareniene, L., Jucevicius R. (2020). The Shadow Economy, Human Development and Foreign Direct Investment Inflows. Journal of Competitiveness, 12(1), 5–21. https://doi.org/10.7441/joc.2020.01.01
Bank of Russia. (2021). External Sector Statistics. Retrieved 02 02, 2021, from Bank of Russia: http://www.cbr.ru/eng/statistics/macro_itm/svs/
Berdiev, A. N., Saunoris, J. W., & Schneider, F. (2018). Give Me Liberty, or I Will Produce Underground: Effects of Economic Freedom on the Shadow Economy. Southern Economic Journal, 537–562. https://doi.org/10.1002/soej.12303
Bradley, F. (2005). International marketing strategy. Prentice Hall.
Breusch, T., & Pagan, A. (1980). The Lagrange Multiplier Test and its Applications to Model Specification in Econometrics. The Review of Economic Studies, 47(1), 239–253. https://doi.org/10.2307/2297111
Cuong, H. V., Luu, H. N., & Tuan, L. Q. (2020). The impact of the shadow economy on foreign direct investment. Applied Economics Letters, 28(5), 391–396.
Davies, R.B., Siedschlag, I., & Studnicka, Z. (2021). The impact of taxes on the extensive and intensive margins of FDI. International Tax and Public Finance, 28, 434–464.
Desbordes, R., & Wei, S.-J. (2017). The effects of financial development on foreign direct investment. Journal of Development Economics, 127, 153–168. https://doi.org/10.1016/j.jdeveco.2017.02.008
Dickey, D. A., & Fuller, W. A. (1979). Distribution of The Estimators for Autoregressive Time Series with A Unit Root. Journal of The American Statistical Association, 74(366a), 427–431. https://doi.org/10.1080/01621459.1979.10482531
Engle, R. F. (1982). Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation. Econometrica, 50(4), 987–1007. https://doi.org/10.2307/1912773
Enste, D. (2018). The shadow economy in industrial countries. IZA World of Labour, 127, 1–11. https://doi.org/10.15185/izawol.127.v2
ESCWA. (2007). Report on Foreign Direct Investment Inlfows in the Escwa Region. New York: Economic and Social Commission for Western Asia.
Feige, E. L. eds. (1989). The Underground Economies. Tax Evasion and Information Distortion. Cambridge University.
Frey, B. S., & Pommerehne, W. W. (1984). The Hidden Economy: State and Prospects for Measurement. Review of Income and Wealth, 30(1), 1–23. https://doi.org/10.1111/j.1475-4991.1984.tb00474.x
Huynh, C. M., Nguyen, V. H. T., Nguyen, H. B., & Nguyen, P. C. (2019). One-way effect or multiple-way causality: foreign direct investment, institutional quality and shadow economy? International Economics and Economic Policy, 17, 219–239. https://doi.org/10.1007/s10368-019-00454-1
ILO. (2012). Statistical Update on Employment in the Informal Economy. Geneva: International Labour Office Department of Statistics.
Imad, A. M. (2002). Foreign direct investment. Palgrave.
Jarque, C. M., & Bera, A. K. (1987). A Test for Normality of Observations and Regression Residuals. International Statistical Review, 55(2), 163–172. https://doi.org/10.2307/1403192
Jorge, M., Juan Carlos, M.-B., & Wilson, P. (2003). Foreign investment in Mexico after economic reform. In K. J. Middlebrook, & Z. Eduardo, Confronting Development (pp. 123–161). Stanford: Stanford University Press.
Kahina, C.-F., & Saïd, S. (2020). Informal economy, government intervention and labour market in Algeria: An analysis by structural models. Economics Bulletin, 1178–1193.
Kheng, V., Sun, S., & Anwar, S. (2016). Foreign Direct Investment and Human Capital in Developing Countries: A Panel Data Approach. Economic Change and Restructuring, 50, 341–365. https://doi.org/10.1007/s10644-016-9191-0
Kuvvet, E. (2021). Anti-Corruption Courts and Foreign Direct Investments. International Review of Economics & Finance, 72, 573–582. https://doi.org/10.1016/j.iref.2020.12.019
Kwiatkowski, D., Phillips, P. C.B., Schmidt, P. & Shin, Y. (1992). Testing the null hypothesis of stationarity against the alternative of a unit root: How sure are we that economic time series have a unit root? Journal of Econometrics, 54(1–3), 159–178. https://doi.org/10.1016/0304-4076(92)90104-Y
Li, Q., Owen, E., & Mitchell, A. (2018). Why Do Democracies Attract More or Less Foreign Direct Investment? A Metaregression Analysis. International Studies Quarterly, 62(3), 494–504. https://doi.org/10.1093/isq/sqy014
Lisi, G. (2015). Unemployment, Underground Economy and Economic Growth In A Matching Model Of Behavioural Economics. International Review of Economics, 63, 159–170. https://doi.org/10.1007/s12232-015-0247-7
Loayza, N. V. (2016). Informality in the Process of Development and Growth. The World Economy, 39(12), 1856–1916. https://doi.org/10.1111/twec.12480
McCloud, N., Delgado, M. S., & Holmes, C. (2018). Does a stronger system of law and order constrain the effects of foreign direct investment on government size? European Journal of Political Economy, 55, 258–283. https://doi.org/10.1016/j.ejpoleco.2018.01.004
Medina, L., & Schneider, F. (2018). Shadow Economies Around the World: What Did We Learn Over the Last 20 Years? IMF Working Paper No. 18/17.
Michael, Y. (2018). The FDI and Economic Growth Controversy in Sub-Saharan Africa. In H. Almas, Determinants of Economic Growth in Africa (pp. 17–54). Palgrave Macmillan. https://doi.org/10.1007/978-3-319-76493-1_2
Muslija, A. (2018). Foreign Direct Investments and Economic Freedom in OECD Countries. International Journal of Economic Studies, 4, 51–59.
NAID. (2021). National Agency of Investment Development. Retrieved 02 2021, 01, from http://www.andi.dz/index.php/en/
Nikopour, H., Shah Habibullah, M., Schneider, F., & Law, S. H. (2009). Foreign Direct Investment and Shadow Economy: A Causality Analysis Using Panel Data. MPRA Paper 14485.
OECD. (2009). OECD Benchmark Definition of Foreign Direct Investment. OECD.
OECD.Stat. (2021). OECD better policies for better lives. Retrieved 02 02, 2021, from https://data.oecd.org/fdi/fdi-flows.htm
OII. (2019). Foreign Direct Investment in the United States 2019, unprecedented competition in the global race for jobs. Washington: Organization for International Investment.
Osano, H. M., & Koine P. W. (2016). Role of Foreign Direct Investment on Technology Transfer and Economic Growth in Kenya: A Case of The Energy Sector. Journal of Innovation and Entrepreneurship, 5, 31. https://doi.org/10.1186/s13731-016-0059-3
Osei, M. J., & Kim, J. (2020). Foreign direct investment and economic growth: Is more financial development better? Economic Modelling, 93, 154–161. https://doi.org/10.1016/j.econmod.2020.07.009
Peres, M., Ameer, W., & Xu, H. (2018). The Impact of Institutional Quality on Foreign Direct Investment Inflows: Evidence for Developed and Developing Countries. Economic Research-Ekonomska Istraživanja, 31(1), 626–644. https://doi.org/10.1080/1331677X.2018.1438906
Phillips, P. C., & Perron, P. (1988). Testing for A Unit Root in Time Series Regression. Biometrika, 75(2), 335–346. https://doi.org/10.1093/biomet/75.2.335
Ramsey, J. B. (1969). Tests for Specification Errors in Classical Linear Least-Squares Regression Analysis. Journal of the Royal Statistical Society Series B (Methodological), 31(2), 350–371. https://doi.org/10.1111/j.2517-6161.1969.tb00796.x
Rehman, C. A., Ilyas, M., Alam, H. M., & Akram, M. (2011). The Impact of Infrastructure on Foreign Direct Investment: The Case of Pakistan. International Journal of Business and Management, 6(5), 268–276. https://doi.org/10.5539/ijbm.v6n5p268
Ruge, M. (2010). Determinants and Size of The Shadow Economy – A Structural Equation Model. International Economic Journal, 24(4), 511–523. https://doi.org/10.1080/10168737.2010.525988
Sadikova, M., Faisal, F., & Resatoglu, N. G. (2017). Influence of Energy Use, Foreign Direct Investment and Population Growth on Unemployment for Russian Federation. Procedia Computer Science, 120, 706–7011. https://doi.org/10.1016/j.procs.2017.11.299
SAGIA. (2010). Annual Report of FDI. Riyadh: Saudi Arabian General Investment Authority.
Schmerer, H.-J. (2014). Foreign direct investment and search unemployment: Theory and evidence. Int. Review of Economics & Finance, 30, 41–56. https://doi.org/10.1016/j.iref.2013.11.002
Shin, Y., Yu, B., & Greenwood-Nimmo, M. (2014). Modelling Asymmetric Cointegration and Dynamic Multipliers in a Nonlinear ARDL Framework. In Sickles R., Horrace W. (eds) Festschrift in Honour of Peter Schmidt. Springer. https://doi.org/10.1007/978-1-4899-8008-3_9
The Heritage Foundation. (2021). 2020 index of economic freedom. Retrieved 02 03, 2021, from The Heritage Foundation: https://www.heritage.org/index/explore?version=440
UNCTAD. (2021). United Nations Conference on Trade and Development. Retrieved 02 01, 2021, from https://unctadstat.unctad.org/countryprofile/generalprofile/en-gb/012/index.html
Williams, K. (2017). Foreign Direct Investment, Economic Growth, And Political Instability. Journal of Economic Development, 42(2), 17–37. https://doi.org/10.35866/caujed.2017.42.2.002
World bank. (2021). world development indicators. Retrieved 02 01, 2021, from https://databank.worldbank.org/reports.aspx?source=2&series=SL.AGR.EMPL.FE.ZS&country=#
Yao, Y., Chen, G. S., & Zhang, L. (2021). Local financial intermediation and foreign direct investment: Evidence from China. International Review of Economics & Finance, 72, 198–216. https://doi.org/10.1016/j.iref.2020.12.003
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Zeddam, A. A., Dahmani, M. D., & Hamrit, A. (2021). Informal Sector and International Capital Movement: New Evidence from Some Petroleum Countries. Economics and Business, 35, 117-132. https://doi.org/10.2478/eb-2021-0008
