Foreign Direct Investment and Economic Growth: A Panel Data Analysis

This paper investigates the influences of FDI on economic growth of selected Latin American and Asian countries both directly and indirectly through factors such as technology, knowledge transfer, and trade openness. The study uses the growth regression to examine and identify not only the relationship between the FDI and economic growth of the underlying countries but also the interaction effects of FDI with human capital and trade openness on the economic growth based on the statistical performance of the interaction terms in the model. The evidence from the study shows that FDI does have an impact on economic growth both directly by capital accumulation and indirectly by the spill-over effect. However, the quality and type of FDI attracted in a country could influence or alter FDI’s impact on economic growth. Furthermore, the study also indicates the extent of FDI’s impact on economic growth will depend on how much a country can absorb that incoming new technology or knowledge based on the level of its human capital