IAAPS Web Site

This article investigates the relationship between foreign direct investment (FDI), good governance infrastructure, and the economic growth rate in fifteen Asian economies over the period 1996 to 2008 applying random effect, feasible generalized least square, and Prais–Winsten estimation models. The empirical results reveal that FDI and good governance indicators, such as government effectiveness, political stability, and the absence of violence, are robust determinants of economic growth, as they exhibit consistent results under different estimation models that correct heteroskedasticity in panel data. The study also reveals that financial deepening significantly influences the economic growth of a country. The article concludes that countries which can formulate FDI-led policies, ensure a sound governance environment in general, and supply adequate finance for domestic investors from the existing financial system, are likely to enhance economic growth at large.