Nexus between Foreign Direct Investment, Economic Growth and Domestic Investment in Selected Asia-Pacific Countries: Evidence from Panel Data Analysis

Abstract

This study examines the effects of foreign direct investment (FDI) on economic growth (GDP) and domestic investment (GDI) in 16 Asia-Pacific countries from 2011 to 2025. It also investigates the influence of FDI on domestic investment, specifically whether FDI produces a crowding-in or crowding-out effect. The study employs conventional panel estimation techniques, including pooled ordinary least squares (OLS), the fixed-effects model (FE), and the random-effects model (RE). The findings indicate that GDI has a positive and significant relationship with economic growth, whereas FDI is positively related to economic growth but is statistically significant only in the robust fixed-effects model. The estimated influence of FDI on GDI is negative but statistically insignificant under OLS; in the fixed-effects model, it is positive but statistically insignificant. Finally, the Granger causality test indicates a unidirectional relationship from FDI to GDP and from GDP to GDI, whereas a bidirectional causal relationship exists between GDI and FDI. The literature review and study results suggest that FDI inflows support economic growth and are positively associated with domestic investment. Therefore, targeted FDI policies are needed not only to attract foreign investors but also to encourage linkages that promote domestic investment and economic development in Asia-Pacific nations.