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Effect of Foreign Direct Investment on Economic Growth and Domestic Investment: Evidence from OECD Countries

Author

Listed:
  • Emre Gökçeli

    (Brunel University London, United Kingdom)

  • Jan Fidrmuc

    (Université de Lille, France)

  • Sugata Ghosh

    (Brunel University London, United Kingdom)

Abstract

This study assesses the impact of foreign direct investment (FDI) inflows on economic growth and domestic investment in a panel of Economic Co-operation and Development (OECD) countries during the period of 1990-2017 by utilizing the method of fixed-effects and system generalized method of moments (GMM). The findings show that FDI inflows are positively and significantly associated with the economic growth of the host economy. When considering the origin of FDI, we find that FDI from developed countries contributes to the growth rate in the receiving economy, while FDI from developing countries shows no significant effect. Importantly, FDI does not appear to crowd in or out domestic investment. Only FDI from developed countries is associated with crowding in of domestic investment.

Suggested Citation

  • Emre Gökçeli & Jan Fidrmuc & Sugata Ghosh, 2022. "Effect of Foreign Direct Investment on Economic Growth and Domestic Investment: Evidence from OECD Countries," European Journal of Business Science and Technology, Mendel University in Brno, Faculty of Business and Economics, vol. 8(2), pages 190-216.
    • Handle: RePEc:men:journl:v:8:y:2022:i:2:p:190-216
    DOI: 10.11118/ejobsat.2022.012
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    More about this item

    Keywords

    foreign direct investment; economic growth; domestic investment; crowding in/out; OECD;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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