If fdi has a positive impact on economic growth after controlling for endogeneity and other growth determinants, then this weakens arguments for restricting foreign investment. Because the overall theory is that fdi inflow enhances and sustains economic growth in the host country. The role of foreign direct investment on economic growth has been hotly debated in the literature. This paper examines the effect of foreign direct investment fdi on economic growth and determines how the regulatory regime of the countries affects the fdi growth relationship for 22 subsaharan african countries for the period 19802011. Foreign direct investment fdi has been viewed as a power affecting economic growth eg directly and indirectly during the past few decades. The core of this paper is the empirical analysis for the case of ireland, one of the leading fdi recipients in the eu. Regression model used in analyzing the effect of foreign. Foreign direct investment and economic growth in albania. Impact of foreign direct investment and trade on economic growth foreign direct investment fdi and trade are often seen as important catalysts for economic growth in the developing countries. It in particular examines how fdi affects gdp growth, both directly and also conditioning on trade liberalization that ethiopia adopted in early 1990s. Laura alfaro harvard business school areendam chanda louisiana state university sebnem kalemliozcan university of houston and nber selin sayek bilkent university august 2006 abstract. Foreign direct investment and economic growth in zimbabwe.
However, when accounting for the different average. Background foreign direct investment fdi has been regarded as a crucial factor in driving economic growth in. High rates of economic growth will cause levels of aggregate demand for investments both domestic and foreign to rise zhang 2001. Sep 29, 2008 the results show that while there is a bi. National policies and the international investment architecture. The impact of foreign direct investment on economic growth. Foreign direct investment and economic growth literature. Since economic growth does not depend solely on macroeconomic indicators or political stability, the ghana investment promotion centre must be encouraged to develop policies that would attract more foreign direct investment into the agricultural sector to improve economic growth. The impact of sector foreign direct investment on economic. Foreign direct investment, financial development, economic growth, panel data analysis jel classification. It is conventionally measured as the percent rate of increase in real gross domestic product, or real gdp. Khondoker abdul mottaleb it is widely recognized that foreign direct investment fdi produces economic benefits to the recipient countries by providing capital, foreign exchange. Fdi inflows are often seen as important catalyst for economic growth in the developing countries. The effects of remittances, foreign direct investment, and.
The intense periods of economic growth are characterized by the process of attracting some important fdi flows lipsey, 2000. The nexus between foreign direct investment fdi and economic growth has been a longstanding debate from mixed empirical findings. Despite the important role played by fdi in economic growth, a number of policymakers have. This study examines the relationship between renewable electricity consumption, foreign direct investment and economic growth in egypt. This paper examined the effects of foreign direct investment fdi on the development of nigerian economy. Impact of foreign direct investment and trade on economic growth. Foreign direct investment fdi and trade are often seen as important catalysts for economic growth in the developing countries. This calls for this study which seeks to explore linkages between inflation, foreign direct. Studies reveal the influence of foreign direct investment upon economies, and this stimulates. The foreign direct investmenteconomic growth nexus. The majority of fdi has been directed at developed countries. The threshold for a foreign direct investment that establishes a controlling interest, per guidelines established by the organisation of economic cooperation and development, is a minimum 10%. Data for the entire continent and data for eleven countries within the continent were used for the empirical analysis.
In this regard the study used auto regressive distributed lag ardl bound testing approach over time series data. Pdf the effect of foreign direct investment on economic. Fdi creates direct, stable and longlasting links between economies. Abstract this paper examines foreign direct investment fdi inflows and its impact on economic growth in australia.
Fdi is a stimulator for economic growth in underdeveloped countries tsai, 1994 27. Direct investment excludes investment through purchase of. Chew ging lee 2009 has pointed out that gdp per capita has a positive effect on fdi inflows in the long run. Rather than crowding out domestic investment, fdi is found to be complementary with domestic investment. Because they have different motivations and work through different modalities, remittances, foreign direct investment fdi, and official development assistance may be expected to have different consequences for economic growth. Yet, the benefits of fdi do not accrue automatically and evenly across countries, sectors and local communities.
It is conventionally measured as the percent rate of increase in real gross domestic. After second world war, japanese companies entered indian. In the aggregate level, fdi is observed to have a positive effect on economic growth. The topic is in fact quite old and has been discussed by researchers for the last 3 decades. Does foreign direct investment accelerate economic growth.
A theoretical framework edmore mahembe, nm odhiambo abstract the relationship between fdi and economic growth has attracted considerable attention over the years. Foreign direct investment, finance, and economic development. How does foreign direct investment promote economic growth. The paper investigates the relationship between foreign direct investment and economic growth. Impact of foreign direct investment on the economic growth. Findlay 1978 postulates that foreign direct investment increases the rate of. Ilan, 2007 investigates the impact of foreign direct investment fdi on economic growth using detailed sectoral data for fdi inflows to indonesia over the period 19972006. Impact of foreign direct investment on economic growth of. Foreign direct investment, financial development and economic growth. In view of the transitions in global economy today, the role of fdi has enlarged. The finding of this thesis is that bidirectional causality exist, between foreign direct investment and economic growth in malaysia, i. Some studies are of the view that foreign direct investment contributes positively to the growth of the economy 1 6, while some are of the view that fdi only contributes small and it is not significant 7 8.
Determinants of foreign direct investment and its impact. Foreign direct investment, regulations and growth in sub. Foreign direct investment, financial development and. In terms of policy implications, this studys analyses do not support special tax breaks and subsidies to attract foreign capital. Pdf renewable electricity consumption, foreign direct. The relationship between foreign direct investment and.
Investigating the impact of foreign capital on economic growth has important policy implications. In this context, developing countries, and least developed countries in particular. Fdi in long run has negative relationship with economic growth kogid et al, 2010 26. Introduction the number of empirical studies examining the impact of foreign direct investment fdi and financial sector development on economic growth has been growing ever since the emergence of endogenous. This paper measures the impact of foreign direct investment fdi on economic growth in ethiopia based on annual time series data over the period 1974 to 2011. Purchasing power parity and unit root tests using panel data, journal of international money and finance, elsevier, vol. Fdi inflows are considered to be a vital source of economic growth or development for any economy and it plays big role in growth in gross domestic product gdp, improvement in infrastructure, employment creation, export and trade performance. The objective of this thesis is to investigate the causal relationship between foreign direct investment fdi and economic growth. The purpose of this study is to disentangle the effects of foreign direct investment fdi on economic growth.
During the past two decades, foreign direct investment fdi has become increasingly important in the developing world, with a growing number of developing countries succeeding in attracting substantial and rising amounts of inward fdi. However, when accounting for the different average growth performance across sectors. British capital came to india during the colonial era of britain in india. The study utilizes time series data over the period of 19912015. Economic growth is the increase in the amount of goods and services produced by an economy over. Department of economics, keynes college, university of kent, canterbury, kent, ct2 7np this paper estimates the impact of foreign direct investment fdi on capital accumulation, and output and total factor productivity tfp growth in the.
Earlier foreign direct investment fdi was looked with great suspicion by many developing countries but now the dilemma has been removed and it is regarded as a catalyst for economic growth and important vehicle for transfer of technology from developed to developing countries. The paper examines the contribution of foreign direct investment to economic growth in africa using graphical and regression analysis. Krishna chaitanya vadlamannatia, artur tamazianb and lokanandha reddy iralac 2009 analyses about the determinants of fdi in asian economies. Dec 17, 2002 the paper investigates the relationship between foreign direct investment and economic growth. In this paper, we analyse the role played by foreign direct investment inflows in the long run economic growth of 16 economies in the mena region, using the method of gmm estimation for dynamic panels.
How does foreign direct investment affect economic growth. Impact of foreign direct investment on the economic growth of. The sustainable development goals have refocused attention on ways of providing external finance to support development. The authors identify that foreign direct investment improves technology and has positive impact on economic growth. Foreign direct investment, economic freedom and economic. Determinants of foreign direct investment and its impact on economic growth in developing countries1 dr.
Findlay 1978 postulates that foreign direct investment increases the rate of technical progress in the host country through a. We build an original database by merging several data sources for the period 20002015, and we develop a theoretical. Impact of foreign direct investment on economic growth in. Foreign direct investment, complementarities, and economic. Fdi assumes greater significance in light of the globalization phenomenon embraced by many.
It theoretically analyses the relation and makes use of a panel data set, which is created by the author, to test the relation empirically by making use of growth. Theoretical studies on fdi have led to a better understanding of the economic mechanism and the behavior of economic agents, both at micro and macro level. The results obtained from the study show that there is a negative and statistically insignificant relation between gdp and fdi inflows of pakistan. Pdf the advantages of foreign direct investment fdi for. This thesis researches the relation between foreign direct investment and economic growth in china on a regional level for the period of 20012012. Impact of foreign direct investment and trade on economic. Inekwe 20 argues that although policymakers promote foreign direct investment fdi in accelerating economic development in developing countries, the links between economic development, fdi and human development remain uncertain and thus further research is required to understand the relationships. The effect of foreign direct investment on growth in sub. A model of endogenous growth first highlights the transfer of foreign technology as a key determinant of economic growth, and suggests that economic growth may conversely influence the inflows of foreign capital.
There is also a possibility of a bidirectional relationship between fdi and economic growth. The impact of fdi on growth in developing countries. Fdi and economic growth the historical background of fdi in india can be traced back with the establishment of east india company of britain. Foreign direct investment fdi serves as a facilitating factor for economic growth of various countries. A number of developing countries have been on a quest to attract foreign direct investment fdi with the intention of increasing capital inflow through technological spillovers and transfer of managerial skills. The paper investigates the impact of foreign direct investment fdi on economic growth using detailed sectoral data for fdi inflows to indonesia over the period 19972006. Foreign direct investment and economic growth in china.
An empirical analysis of kenyan data daniel o abala, phd. And ascertain the direction of causality between foreign direct investment fdi and economic growth in nigeria. F21 f34 o16 o23 r11 abstract it is often asserted with confidence that foreign direct investment fdiisbeneficial for economic growthin the host economy. Foreign direct investment, financial development and economic.
Empirical evidence has been mixed, and there remain gaps in the literature. We find evidence that the fdi inflows and the economic growth are correlated positively but with a weak significance from 1996 to2012. Fdi is an important vehicle of technology transfer from developed countries to developing countries. Impacts of foreign direct investment on economic growth. This study examines the causal relationship between fdi and economic growth in selected mena countries in the period 20052010. For the purpose of the empirical study, they have collected panel. Instead, the literature suggests that sound policies encourage economic growth and also provide an attractive environment for foreign investment. Pdf foreign direct investment and economic growth in nigeria. Several theoretical and empirical studies have been conducted to. Foreign direct investment, finance, and economic development laura alfaro and jasmina chauvin. Agricultural sector foreign direct investment and economic. This implies that foreign direct investment is an engine of economic growth. The current paper attempts to analyse the impact of foreign direct investment fdi on the economic growth of pakistan. The causal relationship between foreign direct investment fdi and economic growth has been a subject of extensive debate in finance and economics by various authors with divergent and convergent views.
According to lean 2008, the relationship between fdi and economic growth in the malaysian manufacturing sector is independent. Falki 2009 investigated the impact of foreign direct investment on the economic growth of pakistan by using production function based on the endogenous growth theory covering the period 19802006. Foreign direct investment, domestic investment and economic. Foreign direct investment fdi is generally considered as a key driver of global economic integration. Department of economics working paper series how does. Accordingly, this thesis explores the effect of fdi on economic growth in the region, using data from 43 countries over the period 19802009. Foreign direct investment fdi is an integral part of an open and effective international economic system and a major catalyst to development. Foreign direct investment is assumed to benefit a developing country like nigeria, not only by supplementing domestic investment, but also in terms of employment creation. Foreign direct investment and economic growth etheses. Many studies have attempted to estimate the impact of foreign direct investment fdi on growth around the world, but very few have focused on subsaharan africa. The objective of this study is to investigate the impact of foreign direct investment on economic growth, and to test the hypothesis that the beneficial effect of fdi inflows, in terms of enhanced economic growth, is stronger in those countries with higher level of economic development. Foreign direct investment is assumed to benefit a developing country like nigeria, not only by supplementing domestic investment, but also in.
Some recent work on economic growth has highlighted the role of foreign direct investment in the technological progress of developing countries. Foreign direct investment fdi is argued to play a pivotal role in accelerating economic growth eg of a host country especially in developing and. Does foreign direct investment generate economic growth. Chapter for encyclopedia of international economics and global trade september 2017 research has sought to understand how foreign direct investment affects host economies. The results show that fdi has positive and significant effect on economic growth, so that an increase of 1 percent of its value, growth, 0. Fdi can increase economic growth and development of a country by creating. A high rate of economic growth, ceteris paribus, will increase foreign direct investment, and this results from the expected higher level of profitability. If, however, we find that fdi does not exert a positive. Absorptive capacity and the effects of foreign direct investment and equity foreign portfolio investment on economic growth. Fdi is a key element in international economic integration. Impact of foreign direct investment on nigeria economic growth.
Foreign direct investment, economic growth, primary sector, manufacturing sector, service sector, spillovers. The foreign direct investment is a major source of foreign funds for all countries, irrespective of its development level. Foreign direct investment and economic transformation in myanmar 4 1 introduction structural economic transformation is an aspect of the economic growth process which reflects the reallocation of resources especially labour from less productive to more productive activities, as well as. Organization for economic cooperation and development countries. Last years world investment report highlighted the emerging structural impact of the digital economy on foreign direct investment.
1223 1345 590 1127 168 1016 1227 346 200 645 1473 1211 412 231 636 205 756 305 587 929 636 1475 190 989 1279 788 140 986 598 606 1048 113 1404 182 191