The Asymmetric relationship Between Capital Inflow and Domestic Investment for Selected Developed and Developing Countries: Fresh Evidence from Panel Nardl Investigation

Abstract

Capital inflows play a key role to enhance domestic investment, which in turn, improves the economic growth and development of a country. However, no extensive evidence is available in the present literature concerning the array of capital inflows, exchange rate, inflation, and government expenditures' effect on domestic investment. Through this research, we focused to fill the gap by figuring out the response to the question of whether the associations among capital inflows, exchange rate, inflation, and government expenditures effect on domestic investment exist symmetric or asymmetric. For the analysis Panel, Non-linear Autoregressive Distributed Lagged from 1995 to 2018 has been used. Non-linear estimate gives the long-run asymmetric relations among capital inflows, exchange rate, inflation, government expenditures, and domestic investment in the case of all developing and developed countries panel. Moreover, in the short-run, the asymmetric relations also confirm for selected nations. Panel ARDL verifies the impact in long run consecutively from government expenditures, flows of capital, and exchange rate to domestic investment in two samples of developed and developing countries. This study suggests that to encourage economic growth and development; a conducive investment environment should be provided, domestic financial market quality should be improved, inflation should be maintained, public expenditures should be balanced and domestic investment should also be enhanced.