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Foreign Direct Investment and Economic Growth: A Cross-Country Analysis

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  • Khawar Mariam

    ()
    (Assistant Professor of Economics, Elmira College)

Abstract

It is generally acknowledged that domestic investment boosts economic growth, yet the impact of foreign direct investment (FDI) is not as clear, with some studies suggesting the need for a miniumum threshold level of development in order for FDI to be beneficial. In this paper we conduct an empirical cross-country growth analysis to investigate the impact over two decades, of foreign direct investment at the ‘aggregate’ level, and find that it has a significant and positive relationship with real income per capita, irrespective of any human capital requirements. An interesting observation is that the coefficient on the foreign investment variable is considerably larger than that of the domestic investment variable, suggesting a potentially large role for FDI. However, the problem of establishing the direction of causality, compounded by the unavailability of suitable instrumental variables, remains. Thus, at this point, we go no further than concluding that there is indeed, a large and positive relationship between foreign direct investment and economic growth.

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Bibliographic Info

Article provided by De Gruyter in its journal Global Economy Journal.

Volume (Year): 5 (2005)
Issue (Month): 1 (March)
Pages: 1-14

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Handle: RePEc:bpj:glecon:v:5:y:2005:i:1:n:8

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Cited by:
  1. Egger, Hartmut & Egger, Peter & Falkinger, Josef & Grossmann, Volker, 2005. "International Capital Market Integration, Educational Choice and Economic Growth," IZA Discussion Papers 1863, Institute for the Study of Labor (IZA).
  2. Karimi, Mohammad Sharif & Yusop, Zulkornain, 2009. "FDI and Economic Growth in Malaysia," MPRA Paper 14999, University Library of Munich, Germany.
  3. David Mayer-Foulkes & Peter Nunnenkamp, 2005. "Do Multinational Enterprises Contribute to Convergence or Divergence? A Disaggregated Analysis of US FDI," DEGIT Conference Papers c010_045, DEGIT, Dynamics, Economic Growth, and International Trade.
  4. Chowdhury, Abdur R. & Mavrotas, George, 2005. "FDI and Growth: A Causal Relationship," Working Paper Series RP2005/25, World Institute for Development Economic Research (UNU-WIDER).
  5. Neil Dias Karunaratne, 2013. "Perspectives on Total Factor Productivity and Foreign Direct Investment in OECD Countries based on Panel Data Econometrics," Journal of Knowledge Management, Economics and Information Technology, ScientificPapers.org, vol. 3(2), pages 8, April.
  6. Neil Dias Karunaratne, 2012. "Total Factor Productivity & Foreign direct investment in OECD countries - A Paneldata Econometric Analysis," Discussion Papers Series 465, School of Economics, University of Queensland, Australia.
  7. David Mayer-Foulkes, 2005. "Development and Underdevelopment in the Globalizing Economy," DEGIT Conference Papers c010_005, DEGIT, Dynamics, Economic Growth, and International Trade.
  8. Narjess Boubakri & Jean-Claude Cosset & Nassima Debab & Pascale Valéry, 2011. "Privatization and Globalization: an Empirical Analysis," Cahiers de recherche 1130, CIRPEE.
  9. A. Yasemin Yalta, 2011. "New Evidence on FDI-Led Growth: The Case of China," Working Papers 1107, TOBB University of Economics and Technology, Department of Economics.
  10. Andreia Olival, 2012. "The influence of Doing Business’ institutional variables in Foreign Direct Investment," GEE Papers 0048, Gabinete de Estratégia e Estudos, Ministério da Economia e da Inovação, revised Dec 2012.
  11. Chakraborty, Chandana & Nunnenkamp, Peter, 2008. "Economic Reforms, FDI, and Economic Growth in India: A Sector Level Analysis," World Development, Elsevier, vol. 36(7), pages 1192-1212, July.

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