The Effects of Fdi Inflows on Host Country Economic Growth
THE EFFECTS OF FDI INFLOWS ON HOST COUNTRY ECONOMIC GROWTH
Abstract:
Numerous researchers have investigated the impact of FDI on economic growth. Unfortunately, the empirical literature has produced conflicting conclusions. Specifically, this paper assesses whether the FDI impact on economic activities in the host countries. This study by using a panel data for 94 countries over the 1991–2010 period, shows that there is not a strong complementary connection between FDI and economic growth. Furthermore, FDI lonely directly don’t promote economic growth by itself, but indirectly does via its interaction terms. There is a strong positive interaction effect of FDI with human capital on economic growth.
1. INTRODUCTION
Over the past two decades, many countries around the world have experienced substantial growth in their economies, with even faster growth in international transactions, especially in the form of foreign direct investment (FDI). The share of FDI in GDP has grown five-time through the eighties and the nineties in the world, causes of FDI and economic growth as an important subject. FDI is one main source of growth in certain countries. The relationship between FDI and economic growth has been a critical issue for several decades. Some of the policymakers believe that attracting FDI would eventually positively impact on economic development. The effect of FDI on economic growth has been widely discussed in the economic literature. In recent years, the growing interest in this area of research is also consistent with the shift of policy-makers policies towards attracting more FDI. Since the early 1980s, many developing countries eliminated most restrictions on foreign capital flows.
FDI plays an important role in the economy. The most essential role is to increase economic growth by rising domestic capital formation. According to (Krugman & Obstfeld, 2008)
Abstract:
Numerous researchers have investigated the impact of FDI on economic growth. Unfortunately, the empirical literature has produced conflicting conclusions. Specifically, this paper assesses whether the FDI impact on economic activities in the host countries. This study by using a panel data for 94 countries over the 1991–2010 period, shows that there is not a strong complementary connection between FDI and economic growth. Furthermore, FDI lonely directly don’t promote economic growth by itself, but indirectly does via its interaction terms. There is a strong positive interaction effect of FDI with human capital on economic growth.
1. INTRODUCTION
Over the past two decades, many countries around the world have experienced substantial growth in their economies, with even faster growth in international transactions, especially in the form of foreign direct investment (FDI). The share of FDI in GDP has grown five-time through the eighties and the nineties in the world, causes of FDI and economic growth as an important subject. FDI is one main source of growth in certain countries. The relationship between FDI and economic growth has been a critical issue for several decades. Some of the policymakers believe that attracting FDI would eventually positively impact on economic development. The effect of FDI on economic growth has been widely discussed in the economic literature. In recent years, the growing interest in this area of research is also consistent with the shift of policy-makers policies towards attracting more FDI. Since the early 1980s, many developing countries eliminated most restrictions on foreign capital flows.
FDI plays an important role in the economy. The most essential role is to increase economic growth by rising domestic capital formation. According to (Krugman & Obstfeld, 2008)
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