Output impacts of the interaction between foreign direct investment and domestic credit: Case study of Pacific Island countries

Abstract

Purpose

This paper aims to examine the link among foreign direct investment (FDI), domestic credit expansion and economic growth for six Pacific Island countries.

Design/methodology/approach

Using panel data over 1982-2011, the authors relate the interaction between domestic credit to private sector and FDI to its impacts on output. This study makes use of panel cointegration and the generalized method of moments estimators.

Findings

The empirical results generally show that FDI and domestic credit to private sector serve as substitutes to promote output in these small economies. Such findings are robust to a number of sensitivity tests.

Originality/value

This study contributes to the literature by examining the interaction between domestic credit to private sector and FDI and its impact on output in small Pacific Island economies.

Citation

Chen, H. and Singh, B. (2017), "Output impacts of the interaction between foreign direct investment and domestic credit: Case study of Pacific Island countries", Studies in Economics and Finance, Vol. 34 No. 3, pp. 331-343. https://doi.org/10.1108/SEF-02-2016-0044