Which Type of Investments is Preferred to Achieve A Higher Economic Growth? A Case of the Upper-Middle-Income Economies

Abstract

Industrial revolution 4.0 requires the upper-middle-income economies to invest in critical areas such as technological advancement, infrastructure, internet of things, research and development, and so on. However, as majority of these economies are falling into the middle-income trap, they need huge supports from domestic and foreign investors to supply capital for growth stimulation. The issue on which type of investment should the governments rely on is crucial as it might help the countries to move out from the middle-income trap position. By using system GMM on four different growth models, it was found that gross saving is the main contributor to the economic growth of the upper-middle-income economies. Rather than domestic and foreign investments, the governments should accumulate more savings for future growth and development, which can be used as a source of capital especially in the areas of human capital development, technology, research, Internet of Things, in-line with the needs of industrial revolution 4.0.