Unleashing economic potential: decoding the FDI-economic growth nexus in G-15 economies amidst unique host country traits

Abstract

The study aims to examine the impact of Foreign Direct Investment (FDI) on Economic Growth in G-15 countries while considering the in uence of key host country characteristics, namely Macroeconomic Stability, Financial Development, Human Capital, and Trade Openness. The selection of these variables is supported by both theoretical foundations and empirical studies that highlight their signi cant role in shaping the FDI-growth interconnection. Panel data derived from World Bank Indicators, spanning the period from 1989 to 2021 are analysed using a Feasible Generalized Least Squares method (FGLS). The ndings demonstrated that increased Financial Development, Human Capital, and Trade Openness enhanced the positive effects of FDI on economic growth. However, In ation has a negative effect on growth. Policymakers in these nations should give precedence to developing strong nancial markets, promoting trade liberalization, and investing in human capital to optimize the advantages of FDI. This research addresses a critical gap in the literature as limited empirical work has been conducted on the FDI-growth relationship speci c to the G-15 economies. By employing rigorous panel data methodology and a long-term dataset, this study provides original insights into the interaction between FDI and host country characteristics, contributing to the existing body of knowledge.

Foreign direct investment and economic growth in Arab countries: do institutions, financial development and human capital matter?

“…Iddrisu et al (2024) revealed that both financial development and globalization attract FDI in Africa. Bajaj and Bhooshetty (2024) examined the impact of FDI, macroeconomic stability, financial development, human capital, and trade openness on economic growth in the five major G-15 countries over a 33year period from 1989 to 2021. Their results showed that favorable host country characteristics amplify the impact of FDI on economic growth.…”

“…This section defines the variables and principal components and summarizes the statistics for all the variables employed in the analysis. The choice of our variables has been previously proposed by studies such as Kalai et al (2024), Labidi et al (2024), , Guenichi and Omri (2024), Rajab and Zouheir (2023), Ochi et al (2024), Saidi et al (2022), Bajaj and Bhooshetty (2024), Fazaalloh (2024), Chebli and Saidi (2024), Taşdemir and Özçelik (2023), Ochi et al (2022) The endogenous variable employed in this study is economic growth. The aim of this research is to assess the effect of institutional quality, financial development, and human capital on the FDI-economic growth relationship.…”