FDI inflow in regions of Kazakhstan
2.4. Potential improvements
Despite the represented data in this work, due to lack of information on FDI inflow in regional dataset, I couldn’t run longer time series and regressions. Also, there was no accurate information on export and import amounts that operates in different regions, to test the assumption mentioned in theoretical section, where regions with higher FDI inflow produce higher portion of net export. The relationship between Kazakhstan's selected macroeconomic variables were evaluated, however, it was limited by the short period of time. Thus, by taking a longer period, the potential may increase over time to do more study and the findings will then be more robust.
Conclusion
There has been a long debate between policymakers and economists about whether FDI boosts development in the host countries. The purpose of this work was to assess the relationship between FDI and Economic Growth of Kazakhstan and the effect of FDI on Domestic Savings, as well as to compare inflow of foreign capital in Kazakhstan with other transitionary countries. Real GDP, FDI and Population growth of those countries were analyzed, and investment attractiveness of each region was expressed. 16 regions were assessed in terms of FDI inflow and GDP growth, where population, GDP per capita and FDI per capita were also included into tested model. For the GDP growth and FDI as GDP growth fraction selected time series period was 1995-2018, and per capita value of both FDI and real GDP regression analysis was estimated for the period from 2014 to 2019. Residual maps, regression maps and legends were included to provide better vision of regional development and attractiveness in foreign investment inflow perspective.
The results of the analysis showed that there is a strong relationship between Foreign Direct Investment and real GDP, where FDI explains almost 52% of total GDP growth in Kazakhstan. FDI also has strong relationship with National Savings. Together with DS, regression model with dependent variable GDP growth showed that FDI and DS have lower correlation and lower impact on GDP growth compared to FDI being exclusive independent variable in the model. Another great finding is that net inflow of FDI has the highest correlation with smoothed averaged GDP growth with 2-year delay, explaining that any changes made in FDI inflow, will be affecting the state of GDP growth rate in 2 upcoming years. Moran’s Index showed that FDI in Kazakhstan is clustered and if the country has a higher share of GDP, countries around it are also more eligible to secure inflows of FDI.
Time series run on the regional model of Kazakhstan from the period 2014 to 2019 showed that, the regions with thee highest FDI fraction also have higher GDP per capita, even after Population variable was introduced. However, according to residual map some regions with higher share of FDI have relatively low GDP per capita numbers, but that could be a result of inability of government agencies to properly allocate capital among those regions. Regions
that specialize in oil and gas production have greater FDI inflow amounts and number of international firms operating on their territories.
For the unit root process, Augmented Dickey-Fuller (ADF), Phillips-Perron (PP), and Kwiatkowski Phillips Schmidt and Shin’s (KPSS) tests were used. According to both ADF and PP tests, FDI appears to be stationary at its level form, but results for FDI were not validated by the KPSS test as it is non-stationary at the level but stagnant according to this test at its first difference. Johansen Co-integration test results found that there is a long-run balance relationship with one co-integrated vector between GDP and DS, and between GDP and FDI. Based on the results of this analysis, however, no co-integration was obtained between DS and FDI. The standardized coefficients calculated in this study indicate that a 1% rise in DS and FDI would cause real income to adjust by 0.28 % and 0.62 %, respectively.
Results of the Granger causality test show that unidirectional causation runs from FDI to GDP growth, which differs from Christopher et al. (1994), who found only unidirectional causality from GDP to FDI.
There has been a great deal of evidence in this paper that FDI has a positive impact on GDP growth, but the current crisis will re-test their relationship, so the state should improve the operating conditions to foreign investors to increase the country's external capital inflow. All this, however, should come in reasonable volumes to the country, as excessive amount of FDI will harm the conduct of small and medium-sized enterprises within the country.
List of abbreviations
FDI Foreign Direct Investment GDP Gross Domestic Product DS Domestic Savings
IMFI Investment Management and Financial Innovations WB The World Bank
OECD Organization for Economic Co-operation and Development
List of Tables
Table 1: FDI net inflow in transition economies, US$ billions…….…….…….…….…….24 Table 2: regression analysis on GDP per capita, FDI, Population and Oil& gas…….…….43 Table 3: Regression Statistics on smoothed average FDI as %of GDP with 2-year lag…….49 Table 4: Estimated results for smoothed average FDI as % of GDP with 2-year lag……..49 Table 5: Moran’s Index for variables GDP and FDI…….…….…….…….…….…….……50 Table 6: Estimated summary of Global Moran’s Index…….…….…….…….…….………50 Table 7: ADF and PP tests…….…….…….…….…….…….…….…….…….…….……...51 Table 8: KPSS Test for Unit Root…….…….…….…….…….…….…….…….…….…….51 Table 9: Johansen Co-integration Test…….…….…….…….…….…….…….…….……..52 Table 10: Johansen Co-integration Test with GDP, FDI and DS variables…….…….…….53 List of Figures
Figure 1: FDI inflow indifferent regions of Kazakhstan…….…….……….…….…………26 Figure 2 : Scatterplot of net FDI inflow in Kazakhstan…….…….……….…….……….…36 Figure 3 : Real GDP growth and net FDI inflow in Kazakhstan…….…….……….…….…37 Figure 4 : GDP growth and FDI as share of GDP growth…….…….……….…….……….37 Figure 5 : Domestic Savings and FDI inflow in Kazakhstan…….…….……….…….…….38 Figure 6 : FDI inflow in transitionary economies in billion USD…….…….……….……..39 Figure 7 : GDP growth in transitionary economies in billion USD…….…….……….…….39 Figure 8 : FDI inflow in different regions of Kazakhstan from 2014 -2019, millions of USD…….…….……….…….……….…….……….…….……….…….……….…….…...40 Figure 9 : Scatterplot of FDI as % of GDP…….…….……….…….……….…….……….45 Figure 10 : Scatterplot of FDI as % of GDP with 1-year delay in GDP growth…….……..46 Figure 11 : Scatterplot of FDI as % of GDP with 2-year delay in GDP growth…….……..46 Figure 12 : Scatterplot of FDI as % of GDP with 3-year delay in GDP growth…….……..47 Figure 13 : Scatterplot of FDI as % of smoothed average GDP…….…….……….………..48 Figure 14 : Scatterplot of FDI as % of smoothed average GDP, 1-year delay in GDP growth…….…….……….…….……….…….……….…….……….…….……….………48
Figure 15 : Scatterplot of FDI as % of smoothed average GDP, 2-year delay in GDP growth…….…….……….…….……….…….……….…….……….…….……….………49 List of Maps
Map 1: Net FDI inflow per capita in different regions of Kazakhstan.……….….……….…41 Map 2: GDP per capita in different regions of Kazakhstan.……….….……….………42 Map 3: Residual analysis of GDP per capita and FDI inflow in regions.……….…...………44
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