Foreign Resource Inflows and Economic Growth in Selected Countries in the Global South

Abstract

This study examined the impact of foreign resource inflows: Foreign Direct Investment (FDI), Official Development Assistance (ODA), and Foreign Portfolio Investment (FPI) on economic growth in selected Global South countries from 2002–2022, with emphasis on the moderating role of corruption control and regulatory quality. The study employed dynamic panel estimation techniques, including the System Generalized Method of Moments (SGMM) and Dynamic Panel Threshold Model (DPTM), using data sourced from the World Bank, IMF, UNCTAD, and OECD. The findings revealed that FDI exerts a positive and significant effect on economic growth, particularly in developing economies, while ODA and FPI exert significant negative effects on growth. The study further established that the relationships between foreign capital inflows and economic growth are nonlinear and conditional on governance thresholds. Specifically, FDI enhances growth only when corruption control and regulatory quality exceed threshold levels of -0.833 and -0.548 respectively. Conversely, ODA reduces growth when corruption control exceeds -1.004, while FPI negatively affects growth when corruption control and regulatory quality exceed -0.254 and -0.225 respectively. The study concluded that the effectiveness of foreign capital in the Global South depends largely on institutional quality and absorptive capacity. It recommends governance reforms, improved regulatory frameworks, effective aid management, and balanced financial regulations to maximize the growth benefits of foreign capital inflows.