The economic growth effects of foreign direct investment in developing countries, 1980–2019

Abstract

The foreign investment and economic growth relationship in developing countries have attracted considerable attention in comparative international sociology. However, despite nearly fifty years of research, this relationship is still not well understood. I bring new cross-national evidence to bear upon this issue with analyses that improve upon previous research on the foreign direct investment and economic growth nexus in developing countries. I analyze cross-national longitudinal data using panel regression models with fixed effects and instrumental variables to account for possible endogeneity. Foreign capital penetration appears to be positively associated with economic growth in developing countries, which supports the expectations of neoclassical economic theory. Rather than critiquing any particular theoretical paradigm, this research hopefully serves to help reinvigorate scholarly discussion amongst comparative international social scientists regarding the economic growth effects of foreign direct investment in developing countries.