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Impact of FDI on GDP: An Analysis of Global Economy on Production Function

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  • Khan, Shiraz
  • Mehboob, Farhan

Abstract

This study examines the effects of Foreign Direct Investment Inflows on Gross Domestic Product on the production function theory by balanced panel data of World Development Indicators from 1992 to 2010 of 59 countries representing the global economy. The empirical analysis on basis of generalized least squares estimator with random effects suggests that there is a significant positive relationship between all the variables of Production Function including Gross Domestic Product and Foreign Direct Investment Inflows. The unit root test confirms the model’s predictive validity and all the three variables significantly explain variation in the Gross Domestic Product, Co-integration test confirms the long-run relationship and Granger causality test finally identifies the presence of unidirectional causality among Gross Domestic Product and Foreign Direct Investment Inflows and Bidirectional causality between the all variables of the original production function. It is recommended for the host nations to emphasize on pro-capital polices to attract and maximize foreign direct investment inflows which will ultimately increase Gross Domestic Product of the host nations.

Suggested Citation

  • Khan, Shiraz & Mehboob, Farhan, 2014. "Impact of FDI on GDP: An Analysis of Global Economy on Production Function," MPRA Paper 55352, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:55352
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    File URL: https://mpra.ub.uni-muenchen.de/55352/1/MPRA_paper_55352.pdf
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    References listed on IDEAS

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    5. Kalirajan, Kaliappa & Miankhel, Adil & Thangavelu, Shandre, 2009. "Foreign direct investment, exports, and economic growth in selected emerging countries: Multivariate VAR analysis," MPRA Paper 22763, University Library of Munich, Germany.
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    7. Dierk Herzer & Stephan Klasen & Felicitas Nowak-Lehmann D., 2006. "In search of FDI-led growth in developing countries," Ibero America Institute for Econ. Research (IAI) Discussion Papers 150, Ibero-America Institute for Economic Research.
    8. repec:rza:wpaper:147 is not listed on IDEAS
    9. Ram, Rati & Zhang, Kevin Honglin, 2002. "Foreign Direct Investment and Economic Growth: Evidence from Cross-Country Data for the 1990s," Economic Development and Cultural Change, University of Chicago Press, vol. 51(1), pages 205-215, October.
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    Cited by:

    1. Tamilselvan, M. & Manikandan, S., 2015. "A Study on Impact of Foreign Direct Investment on Gross Domestic Production in India," MPRA Paper 73349, University Library of Munich, Germany.
    2. Avisha Malik & Ash Narayan Sah, 2023. "Does FDI Impact the Economic Growth of BRICS Economies? Evidence from Bayesian VAR," JRFM, MDPI, vol. 17(1), pages 1-19, December.

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    More about this item

    Keywords

    Foreign Direct Investment; Gross Domestic Product; Production Function.;
    All these keywords.

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F6 - International Economics - - Economic Impacts of Globalization
    • F60 - International Economics - - Economic Impacts of Globalization - - - General
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • Z00 - Other Special Topics - - General - - - General

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