The FDI and Economic growth nexus

Abstract

Within the literature the relationship between foreign direct investment (FDI) and economic growth is being debated for a long time based on contradicting empirical findings. FDI and economic growth can be bi-directionally related and their effect can be dependent on the developmental stage of the country receiving the FDI. This paper researches the relationship between FDI and economic growth using a three staged least squares (3SLS) approach to control for endogeneity and simultaneity for 83 countries together and in subsamples based on their developmental stage from 1971 to 2020. The results indicate that FDI has a positive effect on economic growth but that economic growth does not have a positive effect on attracting FDI.