Foreign Direct Investment and Economic Growth in BRICS Economies: A Panel Data Analysis

Abstract

Purpose: This study aims to examine the impact of FDI on economic growth in BRICS over the period 2010 - 2025, while also assessing the role of domestic investment, labour force participation, trade openness, financial development, human capital and inflation in shaping growth dynamics.

Design/Methodology/Approach: This research employs an annual panel dataset spanning from 2010 - 2025, analysed using fixed effects and cross-sectional time to reach Feasible Generalised Least Squares (FGLS) estimation to address the issue of heteroscedasticity, serial correlation, and cross-sectional dependence. Robust diagnostic tests guide the choice of econometric techniques, ensuring reliable inferences on the relationships among FDI, key macroeconomic variables, and growth in BRICS.

Findings: The empirical results revealed that the FDI has a significant positive impact on economic growth across BRICS economies, alongside domestic investment, which also emerges as a robust growth driver. Conversely, inflation negatively affects growth, underscoring the importance of macroeconomic stability. Unexpectedly, export and human capital display a negative association with growth, highlighting the need for structural improvement in trade composition and education systems. Financial development and labour force participation, while positively signed, do not show a statistically significant direct effect in this context.

Originality/Value: Research provides one of the few recent complaints panel analyses of the FDI growth nexus in BRICS, incorporating an extended set of macroeconomic determinants and using updated data up to 2025. It offers nuanced insights that refine conventional expectations, emphasising the complex interplay between foreign investment, domestic factors, and growth in large emerging economies.

Research Limitation: The analysis is constrained by its reliance on annual macro-level data, which may overlook short-run fluctuations, and by not differentiating FDI by sector or quality, or explicitly including institutional governance indicators that could further condition growth impacts.

Practical Implication: The findings underscore the importance of for policymakers in BRICS to continue fostering environment that attract high-quality FDI and encourage domestic investment, alongside maintaining price stability and addressing structural weakness in trade and education system to fully leverage growth opportunities.

Social Implications: By clarifying the channels through which FDI and macroeconomic factors drive growth, the study highlights the potential for well managed investment policies to support broader societal goals, such as employment creation, income enhancement, technological upgrading, ultimately contributing to inclusive economic development.