Title: The FDI inflows in low-income and lower-middle-income countries: the moderating role of military expenditure

Authors: Saif Ur Rahman; Shurong Zhao; Danish Junaid

Addresses: Lady Eleanor Holles International School, 26 Jingping Road, Chancheng, Foshan, Guandong Province, China; School of Economics and Management, University of Electronic Science and Technology of China, Chengdu, Sichuan, China ' School of Public Affairs and Administration, University of Electronic Science and Technology of China, Chengdu, Sichuan, China ' Bahria University Islamabad, Sector E 8/1, Islamabad Capital Territory, Pakistan

Abstract: Foreign direct investment (FDI) inflows have been found to positively impact citizens' quality of life in a country. However, the ways in which a country's military spending moderates this relationship between the factors of citizens' wellbeing and FDI inflows is less known in literature. The present study attempts to bridge this gap by investigating panel data for 56 low-income and lower-middle-income economies (N = 1,064) for a period from 2001 to 2019. Fixed effect regression estimation was used to test the hypothesised relationships, which demonstrate that military spending significantly and negatively correlates with inward FDI. The results show that in less developed economies, governments' spending in their security sectors reduces the chances of attracting inward FDI in its direct role; and in its moderating role, it negatively impacts the FDI inflows attracted by the variables of GDP per capita and health infrastructure in a country. The study has policy implications for improving the quality of life in less developed countries.

Keywords: foreign direct investment; FDI; military expenditure; government spending; wellbeing economy; health expenditure; developing economies.

DOI: 10.1504/IJSE.2024.137611

International Journal of Sustainable Economy, 2024 Vol.16 No.2, pp.131 - 153

Received: 09 Jun 2022
Accepted: 28 Aug 2022
Published online: 02 Apr 2024 *

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