Global Structural Shocks and FDI Dynamic Impact on Productive Capacities: An Application of CS-ARDL Estimation

Abstract

The COVID-19 pandemic has inflicted structural shocks on the global economic system by raising high economic uncertainty. Policymakers are exploring alternative measures and incentivizing foreign direct investment for the restoration of global economic operations to achieve short- and long-term growth. Given this, the study examines the global response of FDI inflow to measure the change in productive capacity. The productive capacity is proxied by structural change, private business sector, institutional quality, transportation infrastructure development, and natural capital. The study implements empirical analysis for a large panel of 170 countries in a data set from 2000 to 2021. Furthermore, the study employed the cross-sectional augmented auto-regressive distributed lag (CS-ARDL) econometric estimation method for better examinations of current changes in an economic outbreak. From the results of the study, the estimations reveal that FDI inward has significant positive impact over the private business sector, institutional quality, transportation infrastructure, and natural capital on inward FDI. In accordance with discussions, the study suggests several pragmatic policy implications to achieve maximum output by utilizing the inward FDI as incentivized by the governments of the selected countries.