Foreign Direct Investment and Gross Domestic Product Growth

Abstract

It has been assumed that foreign direct investment (FDI) is an important factor of economic growth (EG). The reason for this is that as investment is the dynamic element of gross domestic product (GDP), therefore, FDI is the independent variable and GDP growth the dependent. Recent studies in Argentina and Mexico have shown by the contrary that the consistent increase of GDP is the attractor of FDI. In our investigation we include other countries: China, Brazil, South Korea and Peru beside Mexico and the results are consistent with the prior studies and were proved empirically by testing causality in the Granger sense, adjusted by Toda and Yamamoto's method using the software e-views. We found that FDI, as a percentage of total gross fixed capital formation (GFCF), is so small that it has only a marginal influence in economic growth. In this paper we show only the econometric results for China.