The mixed impact and spillover effects of remittances, foreign direct investment and foreign aid on economic growth: Perspectives from capital flows and global integration

Abstract

The paper focuses on analyzing the influence of international capital flows, including remittances, foreign direct investment and official development assistance on economic growth, especially studying Asia-Pacific countries from 2004 to 2023. This is a critical period with many global fluctuations, such as the COVID-19 pandemic and the Russia-Ukraine conflict, making the optimization of international financial resources more urgent than ever. This research aims to shed light on the relationship between international capital flows and economic growth, and assess their role in promoting the SDGs. These capital flows not only contribute to infrastructure development, job creation, but also support poverty reduction and enhance well-being. However, their effectiveness depends heavily on the economic, political context and governance capacity of countries. The study applies advanced econometric models, such as System-GMM and FEM, REM models to analyze the individual and combined impacts of each capital flow on economic growth. Control variables such as inflation, globalization, monetary policy and geopolitical fluctuations are integrated to ensure accurate results and fully reflect the influencing factors. Differences in impacts between countries, based on geographical regions and income levels, are also analyzed to clarify the heterogeneity in the efficiency of using these financial resources. The study results emphasize that RM and FDI have a strong positive impact on EG. However, the effectiveness of FDI is only maximized when the business environment is stable and the country has good absorption capacity. Remittances not only support short-term consumption but can also be converted into strategic investment, contributing to long-term growth. Meanwhile, ODA has a negative impact on EG, due to ineffective management and incompatibility with the country's development needs. In countries with good institutions, ODA can still improve infrastructure, education and health, but in general, the impact of ODA is often unsustainable. The study not only provides a new perspective on the interection between international capital flows and economic growth but also suggests effective management strategies. The study highlights that effective management of international capital flows is key to ensuring sustainable economic growth in a volatile global environment