Governance, Real Output and Foreign Direct Investment in Asia: A Panel Data Analysis

Abstract

This study intends to analyze the impact of governance (such as political, economic and institutional governance) on real output (GDP) and foreign direct investment (FDI) in 26 Asian countries during 1996 – 2019. Results of panel ARDL show the positive impact of capital, labor and trade openness on GDP and FDI. Institutional governance affects GDP and as well as FDI negatively and validates the notion that corruption greases the wheel of growth but when institutional governance is used with other indicators of governance in the model, it affects the FDI positively. Other dimensions of governance such as political and economic governance have a positive and significant impact on GDP and FDI in all model specifications. The results of the panel causality test that there is bi-directional causality from governance to GDP but evidence of bi-directional causality among governance indicators have also been found. The study emphasized on the policy making to improve the level of governance in Asian countries.