The Fading Growth Dividend of FDI: Evidence from OECD Economies, 2001-2023

This study investigates whether the relationship between foreign direct investment (FDI) and economic growth has diminished over time in OECD economies. We analyze World Bank data for 38 OECD countries from 2000 to 2023 using country- and year-fixed-effects models that relate real GDP growth to lagged FDI inflows and macroeconomic controls. Using the 2008- 2009 global financial crisis as an economically motivated benchmark, we compare 2001-2008 with 2009-2023. A one-percentage-point increase in lagged FDI relative to GDP is associated with 0.026 percentage points higher annual growth in the earlier period but only 0.006 percentage points in the later period, a decline of roughly 79%. The estimated weakening remains negative across alternative inference methods, lag structures, macroeconomic control strategies, and financial-centre exclusions, although statistical precision varies across specifications. A candidate-date analysis identifies 2009 as the strongest empirical division among start dates from 2005 through 2015, but does not establish a unique structural break. A significant FDIby- time interaction further indicates a gradual weakening across the sample. Overall, aggregate FDI has become less strongly associated with subsequent economic growth, consistent with, but not directly identifying, changes in the composition and economic content of recorded international investment.