Relationship Between Foreign Direct Investment and Economic Growth: An Applied Research in Low Income, Lower Middle Income, Upper Middle Income, and High-Income Countries

Abstract

This research aims to find the relationship between foreign direct investment (FDI) and economic growth at the global scale. The panel data, collected by the World Bank for a set of 135 countries over the period from 1990 to 2015, consists countries of four income groups – low, lower-middle, upper-middle, and high – based on gross national income (GNI) per capita. Linear regressions, which take the advantage of the ordinary least squares method, are used for estimating the unknown parameters. The results show that FDI has statistically significant and positive relationship with economic growth. Despite the development level, most countries have positive association with GDP growth. Based on these findings, some policies are recommended to attract more FDI and to use FDI resources more efficiently.