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Fdi And Economic Growth Essay

3860 words - 15 pages

Foreign direct investment (FDI) and Economic growthTable of Contents:Chapter 1 1.1 Introduction 1.2 Literature reviewChapter 2 2.1 Research question 2.2 HypothesisChapter 3 3.1 Outline of data and variables to be studied 3.2 Data analysis 3.3 ConclusionReferences1.1 IntroductionOver 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 net FDI in world GDP has grown five-fold through the eighties and the nineties, making the causes and consequences of FDI and economic growth a subject of ever-growing interest . In this paper, we study the relationship between FDI and economic growth.. Foreign direct investment (FDI) are often to be said have the direct influence on the GDP. Thispaper also attempts to measure the impact of FDI on economic growth. We investigate other factors that might affect or determine these two variables such as education level , government consumption expenditure and others.When the FDI of a country increase, the GDP of the country will increase .Thus, increase in FDI in a country will lead to the increase of GDP of a country. However, the effectiveness of FDI depends on education.FDI hava a stronger impact on economic growth when a country have larger government consumption expenditure.1.2 Literature ReviewOur objective is to investigate the effect of foreign direct investment on economic growth. Borensztein, De Gregorio and Lee (1998), examined empirically the relationship of FDI and economic growth in developing countries. They showed that FDI allowed for transferring technology and for higher growth when the host country had a minimum threshold stock of human capital. Their results indicated also that the main way that FDI increases economic growth is by increasing technological progress, instead of increasing total capital accumulation in the host country. They used the gross FDI which refers only to inflows, reported in the "International Financial Statistics", and for economic growth they used the growth rate of income as the average annual rate of per capita real GDP over each decade. Their results indicated that for host countries with very low levels of human capital the direct effect of FDI on growth is negative, otherwise it is positive.The relationship between FDI and economic growth was also studied in Carkovic and Levine (2002) . They tried to reassess for 72 countries over the period 1960-1995. They used the Generalized Method of Moments (GMM) panel estimator to determine the impact of FDI inflows on economic growth. Their results indicated that for both developed and developing economies FDI inflows did not exert an independent influence on economic growth. Specifically the exogenous component of FDI did not exert a reliable positive impact on economic growth, even allowing for the level of education, the level of economic...

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