Impact of Foreign Direct Investment on Economic Growth: Do Host Country Social and Economic Conditions Matter?

Empirical studies analyzing the relationship between foreign direct investment (FDI) and economic growth haven't led to clear-cut conclusions yet. This paper investigates the causal link between FDI and economic growth by, contrary to most other studies, introducing host country characteristics directly into the econometric specification. A dynamic panel data model that relies on a system GMM specification approach is used for a panel of 54 developed and developing countries over the 1980 to 2013 period. Another important contribution is the use of a specific criterion (MMSC-BIC) to select the optimal lag lengths of the right-hand side variables. The main finding is that FDI and GDP per capita are both influenced by host country characteristics but that causality is present only from FDI to GDP per capita, whatever the income level of the country is