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Foreign Direct Investment and Economic Growth: A Time-Series Approach


  • Ghosh Roy Atrayee

    () (Minnesota State University, Mankato)

  • Van den Berg Hendrik F

    () (University of Nebraska-Lincoln)


Research has often focused on how foreign direct investment (FDI) transfers technology from developed economies to less developed economies. Most FDI occurs between developed economies, however, and the country receiving the greatest inflow of FDI is the United States. This paper examines whether such FDI inflows have stimulated growth of the U.S. economy. We apply time-series data to a simultaneous-equation model (SEM) that explicitly captures the bi-directional relationship between FDI and U.S. economic growth. FDI is found to have a significant, positive, and economically important impact on U.S. growth. Also, our SEM estimates reveal that FDI growth is income inelastic. These results imply that: (1) even a technologically advanced country such as the U.S. benefits from FDI, (2) the gains from FDI are very substantial in the long run, and (3) the sustainability of the U.S. current account deficit is enhanced by FDI's positive effect on productivity but undermined by the income inelasticity of FDI. Overall, the results suggest that U.S. policies should focus on keeping the country attractive to foreign direct investors.

Suggested Citation

  • Ghosh Roy Atrayee & Van den Berg Hendrik F, 2006. "Foreign Direct Investment and Economic Growth: A Time-Series Approach," Global Economy Journal, De Gruyter, vol. 6(1), pages 1-21, February.
  • Handle: RePEc:bpj:glecon:v:6:y:2006:i:1:n:7

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    References listed on IDEAS

    1. Robert Scollay & John P. Gilbert, 2001. "New Regional Trading Arrangements in the Asia Pacific?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number pa63.
    2. Anne O. Krueger, 1993. "Free Trade Agreements as Protectionist Devices: Rules of Origin," NBER Working Papers 4352, National Bureau of Economic Research, Inc.
    3. Anne O. Krueger, 1999. "Are Preferential Trading Arrangements Trade-Liberalizing or Protectionist?," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 105-124, Fall.
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    Cited by:

    1. Nevine Mokhtar Eid, 2008. "Financial Development: A Pre-Condition for Foreign Direct Spillover Effects in Egypt," Working Papers 12, The German University in Cairo, Faculty of Management Technology.
    2. repec:ucm:wpaper:05-13 is not listed on IDEAS
    3. Isabel Álvarez González & Romilio Labra, 2013. "Identifying the role of natural resources in knowledge-based strategies of development," Working Papers del Instituto Complutense de Estudios Internacionales 1305, Universidad Complutense de Madrid, Instituto Complutense de Estudios Internacionales.
    4. Wani, Nassir Ul Haq & Kabir, Habib, 2016. "An evaluation of relationship between public debt and economic growth: A study of Afghanistan," MPRA Paper 75538, University Library of Munich, Germany, revised 10 Nov 2016.
    5. Calcedonia Enache & Fernando Merino, 2017. "Determinants of Foreign Direct Investment in Romania: a Quantitative Approach," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 19(44), pages 275-275, February.
    6. Khobai, Hlalefang & Hamman, Nicolene & Mkhombo, Thando & Mhaka, Simba & Mavikela, Nomahlubi & Phiri, Andrew, 2017. "The FDI-growth nexus in South Africa: A re-examination using quantile regression approach," MPRA Paper 80152, University Library of Munich, Germany.
    7. Jun, Sangjoon, 2015. "The Nexus between FDI and Growth in the SAARC Member Countries," East Asian Economic Review, Korea Institute for International Economic Policy, vol. 19(1), pages 39-70, March.

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