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How Does Foreign Direct Investment Affect Growth In Developing Countries? An Empirical Investigation

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  • E. M. Ekanayake
  • John R. Ledgerwood

Abstract

This paper analyzes the effects of foreign direct investment on the economic growth of developing countries. The study uses annual data on a group of 85 developing countries covering Asia, Africa, and Latin America and the Caribbean for the period 1980-2007. We explore the hypothesis that foreign direct investment can promote growth in developing countries. We test this hypothesis using panel data series for foreign direct investment, while accounting for regional differences in Asian, African, Latin American, and the Caribbean countries as well as the differences in income levels. While the findings of previous studies are generally mixed, our results indicate that foreign direct investment has positive and significant effect on economic growth.

Suggested Citation

  • E. M. Ekanayake & John R. Ledgerwood, 2010. "How Does Foreign Direct Investment Affect Growth In Developing Countries? An Empirical Investigation," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 4(3), pages 43-53.
    • Handle: RePEc:ibf:ijbfre:v:4:y:2010:i:3:p:43-53
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    References listed on IDEAS

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    Cited by:

    1. Kunofiwa Tsaurai, 2017. "Foreign Direct Investment-Growth Nexus in Emerging Markets: does Human Capital Development Matter?," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 13(6), pages 174-189, DECEMBER.
    2. Jeffrey A. Edwards & Alfredo A. Romero & Zagros Madjd-Sadjadi, 2016. "Foreign direct investment, economic growth, and volatility: a useful model for policymakers," Empirical Economics, Springer, vol. 51(2), pages 681-705, September.
    3. Pfaff Tobias, 2011. "Das „Bruttonationalglück“ als Leitlinie der Politik in Bhutan – eine ordnungspolitische Analyse / An Ordo-Liberal Analysis of “Gross National Happiness” as Guideline of Politics in Bhutan," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 62(1), pages 365-386, January.
    4. Barkauskaite Aida & Naraskeviciute Violeta, 2016. "Foreign Direct Investment Impact on Economic Indicators of the Baltic Countries," Economics and Business, Sciendo, vol. 28(1), pages 61-67, April.

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    More about this item

    Keywords

    Foreign direct investment; developing countries; economic growth;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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