A Methodological Critique of Foreign Direct Investment in Development Countries

979 WordsJun 16, 20184 Pages
Many writers have tried to figure out if there is a direct link between Foreign direct investment (FDI) and economic growth of an economy in terms of Gross domestic product (GDP) but a reliable procedure hasn’t been found yet. Sharma (2008) tends to assume that if more investments take place in developing Countries then there will be an augmenting effect on the economy and likewise if there is little or no FDI then there will be a growth retarding effect. The first part of the paper tries to see what other authors have to say though we have limited articles regarding Foreign direct investment and economic growth if it has a positive or negative effect, the second part tries to see the methodology used and the final part is based on how…show more content…
It included variables such as GDP, per capita income, GDP growth rate, FDI, inflation rate etc. from 66 developing Countries over the last three decades and their results suggest that FDI, trade, human capital and domestic investment are important sources of economic growth for developing Countries and they find a strong positive interaction between FDI in advancing economic growth and their results also show that FDI stimulates domestic investment and the contribution of FDI to economic growth is enhanced by its positive interaction with human capital and sound macro-economic policies and institutional stability. The model it used was based on endogenous growth theory which implies that FDI can affect growth endogenously if it generates increasing returns in production via externalities and spillover effects. Duttaray, Dutt and Mukhopadhyay (2008) examined the causality between FDI and economic growth for 66 developing Countries, taking into account their interaction with exports and technological change and they also conducted time series analysis which is for testing Granger causality in the presence of non stationary time series for each Country and the main findings of this article are that FDI causes growth in several developing Countries but the mechanism through which this works differs across Countries and reverse causality from growth to FDI exists for many Countries. All data used was

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