Research article
● Open access
Foreign Direct Investment and Economic Growth in Myanmar: A Comparative Analysis Across Political Regimes (2000-2024)
Abstract
Background: Foreign Direct Investment (FDI) has been widely recognized as a catalyst for economic development in emerging economies. However, the effectiveness of FDI in stimulating growth is contingent upon the prevailing political and institutional environment. Myanmar's experience with FDI across four distinct governmental periods between 2000 and 2024 provides a unique natural experiment for examining this relationship.
Objective: This study investigates the long-term impact of FDI on Myanmar's economic growth across four successive government administrations: the State Peace and Development Council (SPDC, 2000-2011), the Union Solidarity and Development Party (USDP, 2011-2016), the National League for Democracy (NLD, 2016-2021), and the State Administration Council (SAC, 2021-2024). The research examines how political stability, human capital, inflation, and government expenditure moderate the FDI-growth nexus.
Methods: Employing a quantitative research design, the study utilizes annual time-series data from 2000 to 2024 sourced from the World Bank, International Monetary Fund, and Myanmar's Central Statistical Organization. Econometric techniques including Analysis of Variance (ANOVA), multiple regression analysis with dummy variables, the Chow test for structural breaks, and independent samples t-tests were applied to examine relationships and differences across government periods.
Results: The findings reveal significant variations in economic performance across the four governmental periods (F-statistic = 12.45, p < 0.001). FDI exhibited a strong positive relationship with GDP growth (coefficient = 0.52, p < 0.001), while inflation demonstrated a negative impact (coefficient = -0.15, p < 0.001). The NLD period (2016-2021) experienced significantly higher growth compared to preceding administrations, while the SAC period (2021-2024) witnessed a dramatic decline (coefficient = -10.50, p < 0.001). Chow tests confirmed structural breaks at each government transition, with the most pronounced break occurring between the NLD and SAC periods (F-statistic = 15.40, p < 0.001).
Conclusion: Political stability emerges as a critical determinant of FDI effectiveness in Myanmar. While FDI significantly contributes to economic growth under stable governance conditions, political instability undermines investor confidence and diminishes FDI's growth-enhancing potential. Strategic investments in human capital, inflation control, and productive government expenditure are essential for maximizing FDI's developmental impact. These findings offer valuable insights for policymakers in politically transitioning economies seeking to optimize FDI for sustainable development.
Keywords
Foreign direct investment; economic growth; political stability; Myanmar; government transitions; structural breaks; institutional quality; Southeast Asian economies
References
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Solow, R. M. (1956). A contribution to the theory of economic growth. Quarterly Journal of Economics, 70(1), 65-94.
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Turnell, S. (2022). Myanmar's economy in crisis. ISEAS Publishing.
UNCTAD. (2020). World Investment Report 2020: International production beyond the pandemic. United Nations Conference on Trade and Development.
World Bank. (2020). Myanmar economic monitor: Resilience amidst challenges. World Bank Group.
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Xu, B. (2000). Multinational enterprises, technology diffusion, and host country productivity growth. Journal of Development Economics, 62(2), 477-493.
Zhang, Y., & Ma, J. (2021). Government expenditure and economic growth: Evidence from emerging markets. Journal of Economic Studies, 48(5), 950-966.
Anwar, S., & Nguyen, L. P. (2021). Foreign direct investment and economic growth in Vietnam. Asian Economic Journal, 35(2), 156-178.
Athukorala, P., & Tran, T. Q. (2022). Foreign direct investment in ASEAN: Trends, patterns, and policy implications. Asian Development Review, 39(2), 45-72.
Aung, M. K., & Lin, M. S. (2021). FDI inflows and economic growth in Myanmar: The role of governance and policy reforms. Asian Economic Policy Review, 15(4), 511-528.
Barro, R. J. (1990). Government spending in a simple model of endogenous growth. Journal of Political Economy, 98(5), S103-S125.
Bassi, A., & Roberts, T. (2022). Human capital and FDI: Exploring the role of skilled labor in emerging economies. Journal of International Business Studies, 54(2), 203-218.
Blomström, M., & Kokko, A. (1998). Multinational corporations and spillovers. Journal of Economic Surveys, 12(3), 247-277.
Borensztein, E., De Gregorio, J., & Lee, J. W. (1998). How does foreign direct investment affect economic growth? Journal of International Economics, 45(1), 115-135.
Busse, M., & Hefeker, C. (2007). Political risk, institutions, and foreign direct investment. European Journal of Political Economy, 23(2), 397-415.
Campos, N. F., & Coricelli, F. (2022). Financial liberalization and democracy: The role of reform sequencing. Journal of Comparative Economics, 50(3), 645-668.
Chenery, H. B., & Strout, A. M. (1966). Foreign assistance and economic development. American Economic Review, 56(4), 679-733.
Chinn, M. D. (2021). Political stability, governance, and FDI: An empirical analysis. Journal of Economic Development, 45(3), 295-314.
Christensen, S., Dobbs, R., & Manyika, J. (2021). Myanmar's moment: Unique opportunities, major challenges. McKinsey Global Institute.
De Mello, L. R. (1999). Foreign direct investment-led growth: Evidence from time series and panel data. Oxford Economic Papers, 51(1), 133-151.
Durham, J. B. (2004). Absorptive capacity and the effects of foreign direct investment and equity foreign portfolio investment on economic growth. European Economic Review, 48(2), 285-306.
Fischer, S. (1993). The role of macroeconomic factors in growth. Journal of Monetary Economics, 32(3), 485-512.
Global New Light of Myanmar. (2023). Myanmar secures over US$1 billion FDI in 7 months of 2022-2023FY. Global New Light of Myanmar. https://www.gnlm.com.mm
Iamsiraroj, S., & Ulubasoglu, M. A. (2015). Foreign direct investment and economic growth: A real relationship or wishful thinking? Economic Modelling, 51, 200-213.
International Crisis Group. (2021). Myanmar's coup: Next steps. International Crisis Group.
Kaufmann, D., Kraay, A., & Mastruzzi, M. (2010). The worldwide governance indicators: Methodology and analytical issues. World Bank Policy Research Working Paper No. 5430.
Kobrin, S. J. (2021). Political risk: A review and reconsideration. Journal of International Business Studies, 52(4), 687-712.
Kudo, T., & Mieno, F. (2020). Myanmar's economic transition: Progress and challenges. Institute of Developing Economies.
Kumar, N., & Raj, S. (2022). FDI in developing countries: The role of political risk and institutional quality. World Development, 146, 105527.
Lee, H., & Kim, M. (2021). Inflation and its impact on foreign direct investment inflows in developing economies. Journal of International Economics, 134, 145-158.
Li, X., & Liu, X. (2005). Foreign direct investment and economic growth: An increasingly endogenous relationship. World Development, 33(3), 393-407.
Lucas, R. E. (1988). On the mechanics of economic development. Journal of Monetary Economics, 22(1), 3-42.
Macrotrends. (2023). Myanmar foreign direct investment 1994-2023. Macrotrends. https://www.macrotrends.net
McMillan, M. S., Rodrik, D., & Verduzco-Gallo, I. (2022). Political instability and the decline of foreign direct investment: The case of Myanmar. Asian Development Review, 39(1), 39-57.
Myanmar Ministry of Planning and Finance. (2018). *Myanmar Sustainable Development Plan (2018-2030)*. Government of Myanmar.
Narula, R., & Pineli, A. (2023). Multinational enterprises and economic development in host countries: What we know and what we don't know. Development Policy Review, 41(2), e12645.
Narula, R., & Santangelo, G. D. (2020). Location, collocation and innovation by multinational enterprises: A research agenda. Industry and Innovation, 27(3), 229-250.
Nguyen, H. T., & Nguyen, M. H. (2022). Inflation and FDI: Evidence from developing countries. Journal of Asian Economics, 78, 101-118.
North, D. C. (1990). Institutions, institutional change and economic performance. Cambridge University Press.
Romer, P. M. (1986). Increasing returns and long-run growth. Journal of Political Economy, 94(5), 1002-1037.
Sahoo, P. (2020). Macroeconomic factors influencing FDI inflows in developing countries: A critical review. Journal of International Trade and Economic Development, 29(5), 537-561.
Solow, R. M. (1956). A contribution to the theory of economic growth. Quarterly Journal of Economics, 70(1), 65-94.
Steinberg, D. I. (2010). Burma/Myanmar: What everyone needs to know. Oxford University Press.
Turnell, S. (2022). Myanmar's economy in crisis. ISEAS Publishing.
UNCTAD. (2020). World Investment Report 2020: International production beyond the pandemic. United Nations Conference on Trade and Development.
World Bank. (2020). Myanmar economic monitor: Resilience amidst challenges. World Bank Group.
World Bank. (2022). Myanmar economic monitor: Pathways to reform. World Bank Group.
Xu, B. (2000). Multinational enterprises, technology diffusion, and host country productivity growth. Journal of Development Economics, 62(2), 477-493.
Zhang, Y., & Ma, J. (2021). Government expenditure and economic growth: Evidence from emerging markets. Journal of Economic Studies, 48(5), 950-966.