Economic Effects of Inward Foreign Direct Investment in Myanmar

Abstract

This paper aims to examine the effects of inward foreign direct investment (FDI) on economic growth and domestic investment at the regional-level and sectoral-levels of Myanmar economy, by applying a panel vector-autoregressive model framework. The major research questions are twofold: whether inward FDI causes economic growth or economic growth attracts inward FDI, and whether inward FDI crowds in or crowds out domestic investment. The main findings are summarized as follows. In the regional level analysis, there is a difference in the FDI-economic growth relationship between the FDI-intensive region and the FDI-less-intensive one. In the FDI-intensive region, the bidirectional FDI-economic growth relationship is found, supporting the both hypotheses of FDI-driven growth and growth-driven FDI, while the FDI-driven growth effect is larger than the growth-driven FDI one. In the FDI-less-intensive region, on the other hand, FDI deteriorates economic growth whereas economic growth still induces FDI. The difference in the FDI-economic growth relationship between the regions might come from the gap in agglomeration effects. In the sectoral level analysis, the crowd-in effect of FDI on domestic investment is found in the non-oil and gas sectors, since the FDI in the oil and gas sector has less linkages to domestic investment.