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This chapter presents the research findings. Specifically, the correlations results regarding the relationships between FDI inflows and economic development indicators in Laos are provided.

This chapter presents the research findings. Specifically, the correlations results regarding the relationships between FDI inflows and economic development indicators in Laos are provided.

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Table 17. FDI and GNI per capita Coefficient of Correlation

 

FDI, net inflows (BoP, 

current US$)



GNI per capita (constant 2005 US$)

Pearson Correlation

Sig. (2­tailed)

N



.881**

.000

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As indicated in Table 17, Pearson correlation of   FDI inflows and 

GNI   per   capita   is   0.881   (p   <   0.05),   that   confirms   a   strong   correlation 

between FDI inflows and GNI per capita. It implies the significant and 

important role of growth of FDI inflows on the growth of GNI per capita. 

5.2 FDI and  Financial Capital

Table 18. FDI and Financial Capital Coefficient of Correlation

Financi

al 

Capital



FDI, 

net 

inflows 

(BoP, 

current 

US$)



Total debt 

Debt 

service 

Debt 

service on 

Gross 

Gross 

(% of 

service on 

external 

capital 

capital 

exports of 

external 

debt, 

formation  formation 

goods, 

debt, total 

long­term 

(% of 

(annual %  services 

(TDS, 

(TDS, 

GDP)

growth)

and 

current 

current 

primary 

US$)

US$)

income)



Pearson 

Correlation

Sig. (2­

tailed)

N



Inflation, GDP 

deflator (annual %)



.819**



­.167



.173



.820**



.812**



­.267



.001



.623



.453



.000



.000



.229



12



11



21



22



22



22



  As indicated in Table 18, the results show that  FDI inflows was 

significantly correlated with the Gross capital formation (% GDP),  Debt 

service on external debt, long­term (TDS, current US$), and Debt service 

on external debt, total (TDS, current US$). 

Figure 11 presents the graph of correlation  between FDI and long­

term debt service on external debt.



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21



Figure  Graph of Correlation  between FDI and long­term debt service 

on external debt



5.3 FDI and Level of Technology

Table 19. FDI and Level of Technology Coefficient of Correlation

 Techonology



Industry, value added (% of GDP)



FDI, net inflows  Pearson Correlation

(BoP, current 

Sig. (2­tailed)

US$)

N



.838**

.000

22



As indicated in Table 19, the correlation of FDI inflows and Industry 

value added (% of GDP) is 0.838 (> 0.5) that confirms a strong correlation 

between these measures.

5.4 FDI and Human Capital

As indicated in Table 20, in the 1990­2012 period, the FDI inflows of 

Laos   had   strongly   positive   relationship   with   the   indicators   of   Human 

Capital.

Table 20. FDI and Human Capital Coefficient of Correlation

Human 

Capital



FDI,   net 

inflows 

(BoP, 

current 

US$)



Life 

expectanc

y   at   birth, 

total 

(years)



Mortality 

School 

School 

rate, 

enrollmen enrollmen

under­5 

School   enrollment, 

t, 

t, 

(per   1,000 

tertiary (% gross)

secondary  secondary 

live 

(% gross) (% net)

births)

.665**

­.705**

.538*

.621**

.856**



Pearson 

Correlatio

n

Sig.   (2­ .001

tailed)

N

22



.000



.012



.006



.000



22



21



18



20



22



5.5 FDI and Energy and Natural Resources

The correlation results indicates a weak correlation between FDI and 

Energy and natural resources. 

Table 21. FDI and Energy and Natural Resources Coefficient of Correlation

 Energy and Natural 



Resources



FDI, net inflows 

(BoP, current 

US$)



Oil consumption per capita (bbl/day per 1000 

people)

Pearson Correlation

­.271

Sig. (2­tailed)

.481

N

9



5.6 FDI and Transportation and Communication

As indicated in Table 22, in general, the FDI inflows of Laos had 

strongly   positive   relationship   with   indicators   of   the   Transportation   and 

Communication.

Table 22. FDI and Transportation and Communication Coefficient of 

Correlation

Air 

transport, 

Fixed 

registered  Mobile  broadban

carrier 

cellular  d Internet 

Air 

departure subscripti subscribe

Internet 

transport, 



ons (per 

rs (per 

users (per 

passenger worldwid

100 

100 

100 

Roads, total network 

s carried

e

people)

people)

people)

(km)

**

**

**

FDI, 

Pearson 

.721

.707

.833

.593

.815**

.896**

net 

Correlatio

inflows  n

(BoP, 

Sig. (2­

.000

.000

.000

.055

.000

.006

current  tailed)

US$)

N

22

22

22

11

15

7



 Transpo

rtation 

and 

Commun

ication



In   summary,   in   this   study   the   author   employed   the   method   of 

correlation   analysis   to   test   the   relationship   between   FDI   inflows   and 

various indicators measuring six aspects of economic development in the 



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context of Laos over the period 1990­2012. The research findings in general 

provide empirical evidence to support the important and positive role of 

FDI inflows on economic development.



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CHAPTER 6: CONCLUSIONS AND DISCUSION



6.1 Conclusions

This research aims to explore the role of FDI inflows on economic 

development   in   Laos,   a   developing   country   which   has   received   very 

mosdest research attention to date. The correlation analysis method was 

employed to serve this purpose. The research results show that in general, 

FDI plays a significant role on economic development. Specifically, FDI 

inflows were found to be positively correlated with almost all indicators 

measuring six aspects of economic developent. The research findings are 

summarized in the following.

FDI and GNI per capita: The findings suggest an important role of FDI 

inflows on GNI per capita by showing a strongly positive correlation 

between the two measures.

FDI   and   Financial   Capital:   The   findings   show   that   FDI   inflows   are 

significantly and positively correlated with some indicators of financial 

capital   including   the   Gross   capital   formation   (%   of   GDP),   the   Debt 

service on external debt, long­term (TDS, current US$), and the Debt 

service on external debt, total (TDS, current US$).

FDI and Level of Techonology: The findings show that FDI inflows has 

a positive and important role on level of techonology, based on a strong 

and positive correlation between FDI and the Industry value added (% 

of GDP).

FDI   and   Human   Capital:   The   findings   show   that   FDI   inflows   are 

significantly correlated with all five indicators of  human capital. All 

correlation coefficients are positive, except the one between FDI and 

Mortality rate, under­5 (per 1,000 live births). This results may need to 

have further study for clarify the relationship between the two measures. 



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The strongest correlation is the one between FDI and School enrollment, 

tertiary (% gross).

FDI and Energy and Natural Resources: The findings failed to provide 

empirical evidence for the significant role of FDI inflows on Energy and 

Natural Resources. Perhaps, it is partly due to the measure limittaion of 

Energy   and   Natural   Resources  with   only   one   indicator   ­   the   oil 

consumption per capita. This may need further exploration with more 

comprehensive measure.

FDI and Transportation and Communication: The findings suggest that 

in   general   FDI   inflows   have   an   important   and   positive   role   on   the 

Transportation and Communication, by showing significantly positive 

correlations   between   FDI   and   five   indicators   of   Transportation   and 

Communication   including  Air   transport,   passengers   carried,  Air 

transport,   registered   carrier   departures   worldwide,   Mobile   cellular 

subscriptions   (per   100   people),   Internet   users   (per   100   people),   and 

Roads   (total   network   ­   km).   The   strongest   correlations   are   those 

between   FDI   and  Roads   (total   network   ­   km),   Mobile   cellular 

subscriptions, and Internet users. 

6.2 Implications of the Study

Theoretical implications

From   theoretical   perspective,   this   study   is   important   because   it 

contributes to better understanding the relationship between FDI inflows 

and economic development in the context of a developing country. This is 

especially   interstesing   and   important   since   the   research   context   in   this 

study   is   Lao   P.D.R.,   a   country   that   has   received   very   little   research 

attention from scholars up to date. Therefore, the findings from this study 



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help to enrich the literature on FDI and its role on economic development 

in general and in developing countries, in particular. 

In   addition,   in   this   study   the   author   empirically   examined   the 

relationship between FDI inflows with a number of aspects of economic 

development, rather than just focusing on one aspect as in many previous 

studies.

Implications for policy makers

On the basis of the findings, this study is also expected to provide a 

number   of   implications   for   policy   makers   in   Laos   with   the   purpose   of 

making effective use of FDI for enhancing economic development in this 

country. Some implications and suggestions are presented in the following.

Promoting and attracting FDI inflows: it is important for policy makers to 

develop appropriate policies to create favorable environment to attract FDI 

inflows.

Maximizing the effective impact of FDI on economic development:  Laos 

government   may   need   to   put   sufficient   investment   into   upgrading 

infrastructure   and   developing   human   capital   so   that   the   country   can 

maximize the techonological spillovers and other benefits associated with 

FDI inflows. Policy makers in Laos also need to work on the necessary 

activities   and   developing   relevant   policies   to   promote   favorable 

environment   for   FDI   and   enhance   the   government’s     capability   to 

maximize the benefits of FDI inflows.

Enhancing   capabilities   of   controlling   and   regulating   FDI   for   better  

economic development: Laos government needs to develop its capabilities 

of controlling and regulating FDI for better economic development. FDI 



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should be directed to the right sectors and areas so that the economy can 

have sustainable development. The government also needs to have ability 

to   select   the   appropriate   FDI   projects,   develop   relevant   policies   toward 

different   types   of   FDI   projects,   and   have   ability   to   make   decision   of 

rejecting some inappropriate projects.

Developing   an   effective   mechanism   affecting   foreign   direct   investors   to  

ensure   mutual   benefits   of   the   foreign   investors   and   the   host   country’s  

development.

6.3 Limitations of the Study and Future Research Direction

First, regardless of the long period of the data collected (1990­2012), 

some variables had limited and small number of observations, like 

the Energy and Natural Resources data which gave mixed results of 

the unavailability of that data.

Second, with regard to measurement issue, there is some limitation 

in terms of a limited number of indicators measuring some variables 

in this study. For example, Level of Techonology and Energy and 

Natural resources each was measured by only one indicator. Future 

research should use more comprehensive scales with multiple items 

to increase the validity of the results.

Third,   many   other   aspects   of   economic   developemnt   could   be 

affected by FDI inflows other than the ones selected in this study. 

The future research could explore the impact of FDI on more aspects 

of economic developemnt.  

Fourth,   in  this   study   the  author   just   explored   the  role  of   FDI   on 

economic   development   by   empirically   examined   the   correlations 



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between   FDI   inflows   and   various   indicators   of   economic 

development in Laos. It would be desirable for future research to test 

the   impact   of   FDI   on   economic   development   employing   more 

advanced technique such as regression.

Another   suggestion   for   future   research   would   be   having   a   micro 

level  analysis   for  Laos   to come  up with a reform strategy   for 

improving  their GNI per capita following  the path in accomplishing 

that goal. Future research could also examine the factors influwncing 

the attraction of FDI inflow to Laos.



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