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Growth effects of FDI in 80 developing economies: the role of policy reforms and institutional constraints


  • Krishna Chaitanya Vadlamannati
  • Artur Tamazian


Theoretical and empirical literatures have identified several channels through which foreign direct investment (FDI) influences economic growth. This paper examines the impact of FDI on economic output growth per worker using aggregate production function augmented with FDI inflows, economic policy reforms and institutional constraints. The paper covers 80 developing countries over the period 1980-2006. We use panel data and employ fixed, random effects and GMM methods for estimation. Our results highlight the importance of FDI, policy reforms and institutional development for growth in developing economies. Finally, we demonstrate that irrespective of reforms and institutions, an increase in FDI affects output growth positively.

Suggested Citation

  • Krishna Chaitanya Vadlamannati & Artur Tamazian, 2009. "Growth effects of FDI in 80 developing economies: the role of policy reforms and institutional constraints," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 12(4), pages 299-322.
  • Handle: RePEc:taf:jpolrf:v:12:y:2009:i:4:p:299-322
    DOI: 10.1080/17487870903314583

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    Cited by:

    1. Metaxas, Theodore & Kechagia, Polyxeni, 2016. "Literature review of 100 empirical studies of Foreign Direct Investment: 1950-2015," MPRA Paper 71414, University Library of Munich, Germany.
    2. Huang, Shu-Chin, 2013. "Capital outflow and R&D investment in the parent firm," Research Policy, Elsevier, vol. 42(1), pages 245-260.
    3. Hassan Fereidouni Gholipour & Usama Al-mulali & Abdul Hakim Mohammed, 2014. "Foreign investments in real estate, economic growth and property prices: evidence from OECD countries," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 17(1), pages 33-45, March.
    4. Salebu, Jefry Batara, 2014. "Pengaruh Penanaman Modal Asing Terhadap Pertumbuhan Ekonomi Di Indonesia: Analisis Data Panel Periode 1994-2013
      [The Impact of Foreign Direct Investment on Indonesian Economic Growth: Panel Data an
      ," MPRA Paper 72830, University Library of Munich, Germany.


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