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An analysis of the relationship between foreign direct investment and economic growth

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  • Jonathan Batten
  • Xuan Vinh Vo

Abstract

Employing a panel data modelling technique, we contribute to two critical research issues: what is the link between Foreign Direct Investment (FDI) and economic growth and does the relationship change under different educational, institutional and economic conditions? Overall, the analysis supports the view that FDI has a stronger positive impact on economic growth in countries with a higher level of education attainment, openness to international trade and stock market development, and a lower rate of population growth and lower level of risk. Thus, countries undertaking reform of cross-border capital restrictions and controls and initiating other policy aimed at encouraging FDI need to ensure that broader social policy objectives-such as education and institutional reform-are also undertaken to leverage the benefits from FDI.

Suggested Citation

  • Jonathan Batten & Xuan Vinh Vo, 2009. "An analysis of the relationship between foreign direct investment and economic growth," Applied Economics, Taylor & Francis Journals, vol. 41(13), pages 1621-1641.
    • Handle: RePEc:taf:applec:v:41:y:2009:i:13:p:1621-1641
    DOI: 10.1080/00036840701493758
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    1. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
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