Asymmetric Growth Dynamics: The Performance-Based Growth-Nexus of Investment, Trade, and Energy in Middle-Income Countries

This study investigates the impact of gross capital formation, foreign direct investment, trade openness, and energy consumption on economic growth in 97 middle-income countries, adopting a performance-based analytical framework. Unlike conventional studies that rely solely on income classifications, this research divides middle-income countries into “Overachievers” and “Underperformers” to capture intra-group divergence in growth dynamics. Employing second-generation panel techniques, including the Cross-Sectionally Augmented IPS (CIPS) test, panel ARDL modeling, and Granger causality analysis for 1993–2020, the findings reveal distinct performance-driven patterns. Gross capital formation consistently exerts a positive and significant long-run effect on growth across both groups, emphasizing the central role of domestic investment. Energy consumption also contributes positively in the long-run, with short-run bidirectional causality observed only among Overachievers. Conversely, foreign direct investment demonstrates a negative effect for Underperformers and an insignificant effect for Overachievers, largely explained by sectoral concentration in low-value-added, enclave, or service-oriented investments with limited linkages and spillovers. Trade openness supports growth in Underperformers but is insignificant for Overachievers, reflecting structural and compositional differences in trade dynamics. These results underscore the importance of performance-based classifications rather than the use of conventional income categories. Lastly, this paper emphasizes the significance of adopting a performance-based approach for capturing heterogeneous growth effects and highlights the need for policies that enhance domestic investment efficiency, strengthen institutional quality, and channel foreign direct investment into sectors with higher spillover potential. JEL Classification: C33, E22, F43, O11, O47