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Article

The Impact of OFDI and Institutional Quality on Domestic Capital Formation at the Disaggregated Level: Evidence for Developed and Emerging Countries

1
School of Economics and Trade, Hunan University, Yuelushan, Changsha, Hunan 410079, China
2
Graduate School of Economics and Management, Ural Federal University, Ekaterinburg 620002, Russia
*
Author to whom correspondence should be addressed.
Sustainability 2020, 12(9), 3661; https://doi.org/10.3390/su12093661
Submission received: 30 March 2020 / Revised: 19 April 2020 / Accepted: 20 April 2020 / Published: 1 May 2020

Abstract

In this study, we investigate whether outbound foreign direct investment (OFDI) either augments or impedes domestic public and private investment, incorporating the role of institutional quality into the context of developed and emerging countries. To this end, we apply a cross-sectional-autoregressive-distributed lag (CS-ARDL) approach to analyze panel data from the period 1996–2017. Our empirical findings suggest that OFDI augments private capital formation for developed countries. Institutional quality (IQ) is found to be a driving factor that promotes private capital formation in the established economies of developed countries. However, OFDI has a negative association with the public capital formation in the established economies of developed countries, while IQ has a positive association with it. In the context of emerging economies, OFDI is found to be too insignificant to have an effect on private and public capital formation. Interestingly, IQ has a detrimental effect on both private and public capital formation in emerging economies. Our findings are robust. The empirical findings of this study imply that institutional quality should continue to be improved in developed countries, while it should surpass a certain threshold for emerging economies to promote domestic capital formation.
Keywords: outbound foreign direct investment; institutional quality; domestic capital formation; panel data outbound foreign direct investment; institutional quality; domestic capital formation; panel data

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MDPI and ACS Style

Ameer, W.; Sohag, K.; Xu, H.; Halwan, M.M. The Impact of OFDI and Institutional Quality on Domestic Capital Formation at the Disaggregated Level: Evidence for Developed and Emerging Countries. Sustainability 2020, 12, 3661. https://doi.org/10.3390/su12093661

AMA Style

Ameer W, Sohag K, Xu H, Halwan MM. The Impact of OFDI and Institutional Quality on Domestic Capital Formation at the Disaggregated Level: Evidence for Developed and Emerging Countries. Sustainability. 2020; 12(9):3661. https://doi.org/10.3390/su12093661

Chicago/Turabian Style

Ameer, Waqar, Kazi Sohag, Helian Xu, and Musaad Mansoor Halwan. 2020. "The Impact of OFDI and Institutional Quality on Domestic Capital Formation at the Disaggregated Level: Evidence for Developed and Emerging Countries" Sustainability 12, no. 9: 3661. https://doi.org/10.3390/su12093661

APA Style

Ameer, W., Sohag, K., Xu, H., & Halwan, M. M. (2020). The Impact of OFDI and Institutional Quality on Domestic Capital Formation at the Disaggregated Level: Evidence for Developed and Emerging Countries. Sustainability, 12(9), 3661. https://doi.org/10.3390/su12093661

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