Reciprocal Relationship among Migration, FDI, and Economic Growth
Keywords:FDI, Migration, Economic Growth, Complement, Substitute
The relationship between migration and Foreign Direct Investment (hereafter called “FDI”) with respect to economic growth remains a topic of interest to researchers and policymakers. Debates have also been going on about whether migration and FDI are substitute or complement to each other. To respond to the debates, research has been carried out on partial relationships among the three variables and/ or one-directional relationships among the variables. However, the three variables may be reciprocally related to each other as a system. This paper’s first contribution is an empirical examination of the possible existence of reciprocal relationships as a system, using panel data from 150 countries from all over the world in 2000, 2005, 2010, and 2015. The second contribution is an empirical examination of whether migration and FDI are substitutes or complements. A simultaneous three-equation model is utilised to test the possible reciprocal relationships and whether migration and FDI are substitutes or complement. This paper concludes the existence of reciprocal causal relationships except between FDI and economic growth, where their relationship is only one way (from FDI to economic growth). It also concludes that FDI and migration are complementary to each other with respect to economic growth.
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