The effects of foreign direct investment inwards and outwards on economic growth: evidence from the top 20 largest economies in the world (1992-2016)

Abstract

Purpose- In this study, considering the capital exporter/importer positions of the World’s top 20 largest economies (W-20) grouped as developing (W-8) and developed (W-12) according to the development level, the effects of foreign direct investment inwards/outwards on economic growth (GDP/GNP) are analyzed econometrically. Methodology- In the study, econometric models, generated by extending Cobb-Douglas type of production function were estimated by employing second generation panel data analysis that takes cross-sectional dependence into consideration for the period 1992-2016. Findings- As a result of the study, both the direct foreign investment inwards and outwards have a significant influence on the economic growth performances of the developed W-12 economies within the examination period. On the contrary, it is determined that the foreign direct investment inwards have a significant effect on economic growth performances of the developing W-8 economies, while foreign direct investment outwards do not have any impact on these economies. Conclusion- These results indicate that the enhancement possibilities of economic growth performances provided by GNP by expanding production possibilities abroad of W-12 and W-8 economies are high and low, respectively.