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FDI and growth: A new look at a still puzzling issue

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  • Dalila NICET-CHENAF
  • Eric ROUGIER

Abstract

In this paper, we argue that the inadequacy of their underlying formal model can explain the failure of the existing empirical studies to exhibit a robust and convergent estimation of the effect of FDI on growth. We build a structural model of growth with endogenous attraction to FDI, and we estimate it on panel data for a sample of Middle East and North Africa countries (MENA). Direct effects of FDI on growth are not significant, and we show that FDI is not only responsive to growth, but it is also likely to promote increases of GDP through indirect channels as it spurs the formation of human capital and exports.

Suggested Citation

  • Dalila NICET-CHENAF & Eric ROUGIER, 2009. "FDI and growth: A new look at a still puzzling issue," Cahiers du GREThA (2007-2019) 2009-13, Groupe de Recherche en Economie Théorique et Appliquée (GREThA).
    • Handle: RePEc:grt:wpegrt:2009-13
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    3. Chebli Mongi & Kais Saidi, 2024. "The Impact of Corruption, Government Effectiveness, FDI, and GFC on Economic Growth: New Evidence from Global Panel of 48 Middle-Income Countries," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(3), pages 10696-10721, September.
    4. Zhang Jiansheng & Tan Wei, 2016. "Study on the green total factor productivity in main cities of China," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 34(1), pages 215-234.
    5. Mihaela Simionescu, 2016. "The relation between economic growth and foreign direct investment during the economic crisis in the European Union," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 34(1), pages 187-213.
    6. Mounir Belloumi & Atef Alshehry, 2018. "The Impacts of Domestic and Foreign Direct Investments on Economic Growth in Saudi Arabia," Economies, MDPI, vol. 6(1), pages 1-17, March.
    7. Belloumi, Mounir, 2014. "The relationship between trade, FDI and economic growth in Tunisia: An application of the autoregressive distributed lag model," Economic Systems, Elsevier, vol. 38(2), pages 269-287.
    8. Maha Kalai & Nahed Zghidi, 2019. "Foreign Direct Investment, Trade, and Economic Growth in MENA Countries: Empirical Analysis Using ARDL Bounds Testing Approach," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 10(1), pages 397-421, March.

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    More about this item

    Keywords

    FDI; growth; attraction; MENA; simultaneous equations;
    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
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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