Original Research

Can stronger governance and institutional quality drive growth through inward foreign direct investments in BRICS nations?

Avisha Malik, Ash Narayan Sah
South African Journal of Economic and Management Sciences | Vol 27, No 1 | a5785 | DOI: https://doi.org/10.4102/sajems.v27i1.5785 | © 2024 Avisha Malik, Ash Narayan Sah | This work is licensed under CC Attribution 4.0
Submitted: 10 June 2024 | Published: 11 September 2024

About the author(s)

Avisha Malik, School of Humanities and Social Sciences, Thapar Institute of Engineering and Technology, Patiala, India
Ash Narayan Sah, School of Humanities and Social Sciences, Thapar Institute of Engineering and Technology, Patiala, India

Abstract

Background: This research focusses on the significance of institutional quality (INSQ) and governance in shaping the relationship between foreign direct investments (FDI) and growth. It specifically examines the BRICS nations (Brazil, Russia, India, China and South Africa) because of their economic significance in the global economy.

Aim: This study aims to analyse the impact of INSQ and governance on sustainable growth, with a particular focus on its effects through the channels of FDI in the BRICS countries.

Setting: Annual panel data from the Organisation for Economic Cooperation and Development (OECD) statistics, the United Nations Conference on Trade and Development (UNCTAD) statistics and the World Bank indicators spanning two decades (2000–2022) are used to analyse BRICS nations.

Methods: The research study employed the Bayesian time-varying coefficient vector autoregression (BTVC-VAR) model to achieve the objective of the study.

Results: The findings indicate that there is no long-term relationship between FDI, INSQ and economic growth in the BRICS countries. However, there is a noticeable co-movement among these variables in the short run.

Conclusion: Given the obtained results, the policymakers should prioritise efforts to strengthen institutional capacity in the short term while focussing on the Sustainable Development Goals (SDG-8 and SDG-16).

Contribution: The existing studies have assumed static economic, social and political conditions, potentially failing to accurately depict the complexities of an actual economy. This study offers methodological innovation by employing Bayesian time-varying coefficient vector autoregression (BTVC-VAR), enabling coefficients to adapt to evolving economic conditions over time. This effectively captures the dynamic nature of variables and provides reliable estimates.


Keywords

Bayesian TVC-VAR; BRICS countries; economic development; FDI; institutional quality; sustainable growth

JEL Codes

C11: Bayesian Analysis: General

Sustainable Development Goal

Goal 16: Peace, justice and strong institutions

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