Foreign Direct Investment and Economic Growth: Panel Data Analysis

Abstract

The aim of this study is to evaluate the relationship between foreign direct investment and economic growth. Although there is no consensus on the relationship between foreign direct investment flows and economic growth in the literature, a growing view in recent years shows that foreign direct investments have contribution on economic growth. These investments act as a main factor for the economic growth of both developed and developing countries. Panel data analysis is used for the empirical study for evaluating the relationship between foreign direct investments and GDP. Data from 14 OECD countries for GDP and foreign direct investments for the 1990-2017 period is used. According to the results of the study, a positive relationship between foreign direct investments and economic growth was identified.

Does Foreign Direct Investment Enhance Economic Growth? Evidence from 30 Leading Global Economies

“…FDI may variously be undertaken by individuals as well as by business entities (Maitena, 2003). Dunning (1993), Sichei and Kinyondo (2012), and Madura and Fox (2014) explain that several factors increase in FDI inflow, which include the strategic drive for international market penetration, efficiency of resources and operations, increased revenue base, profit level, firm value, and shareholders' wealth.…”

“…Available literature indicates that inadequate domestic financial resources constitute a major hurdle in the process of long-term investment for sustainable economic growth and development of many countries of the world, especially the developing countries of Africa, Asia, and Latin America (Juma, 2012; Kosack & Tobin, 2006; Maku, 2015; Michalowski, 2012; Miraskari et al, 2014). The problem is compounded by the inability of most countries to attract FDI, which could help them to overcome the challenges that are inherent in the processes of economic growth and development (Faroh & Shen, 2015; Kudaisi, 2014; Mona, 2015; Sichei & Kinyondo, 2012).…”

“…Inability to attract FDI has grave consequences in Africa and other developing countries, especially in the face of escalating poverty exacerbated by extremely low domestic savings and income being channeled mainly to consumption expenditure (Kudaisi, 2014; Sichei & Kinyondo, 2012). This has serious implications as FDI is very critical in economic growth and development processes in Africa and other developing countries (Demirhan & Masca, 2008).…”

Influence of Quality Education on FDI Inflows in Subs-Saharan Africa: A Theoretical and Empirical Research

“…Since the early 1990s, developing economies have been experiencing a boom in their Foreign Direct Investment (FDI) inflows. However, Africa as a continent has not witnessed much increase relative to the FDI surge in developing countries despite the efforts undertaken to attract FDI (Sichei & Kinyondo, 2012). For example, global FDI inflows in 2015 recorded the highest peak since the global economic and financial crisis of 2008/2009, increasing 38 percent over the previous year.…”