Foreign direct investment remarkably effects the economic growth of the country. A modernized industry and an increase in product output can help achieve this. Kyrgyzstan is a developing and newly independent country of the Former Soviet Union (FSU) and has been keen on luring foreign direct investment.
This study's goal is to determine how foreign direct investments affect economic growth in Kyrgyzstan and also compare it with Kazakhstan (KAZ), Tajikistan (TJK), Turkmenistan (TKM) and Uzbekistan (UZB).
This study aims to find out an appropriate model that can explain the impact of foreign direct investments on economic growth in Kyrgyzstan and compare with the mentioned countries. The variables used were GDP growth (LGDP) as a dependent, foreign direct investment (LFDI), secondary school enrollment (SEDU), financial development indicator: ATMs per 100,000 adults (FD) and Institutional Indicators are control of corruption (CC) regulatory (RQ) and rule of law (RL) and the country dummy for Kyrgyzstan as independent variables.
The data used were ranging from 2000 to 2020 and were obtained from WDI (World Development Indicators).
The Panel Data Regression with a Fixed Effect Model approach (FEM) without interaction and with interaction was the methodology used in this study. In the without-interaction fixed effect model foreign direct investment (FDI), secondary school enrollment, and financial development (FD: ATMs per 100,000 adults) have a positive and significant impact (p-value < 0.05) on the GDP of the mentioned countries from 2000 to 2020.
In the with interaction fixed effect model foreign direct investment (FDI) has a positive and significant effect on GDP of Kyrgyzstan in the study period, furthermore, if we see the p-value of interaction (Interaction of FDI and country dummy), the effect of FDI on GDP growth in Kazakhstan, Tajikistan and Turkmenistan are the same as the base country (Kyrgyzstan), only the effect of FDI on GDP in Uzbekistan is 20.59 percent more than Kyrgyzstan by each 100 percent change in FDI. And also, secondary school enrollment and financial development (FD: ATMs per 100,000 adults) have a positive and significant impact (p-value < 0.05) on the GDP of the mentioned countries from 2000 to 2020 in both models. But the institution indicators (control of corruption, regulatory quality, and rule of law) do not have any significant influence on the gross domestic product (GDP) of Kyrgyzstan, Kazakhstan, Tajikistan, Turkmenistan, and Uzbekistan in the study period of 2000-2020 in both models.