The Impact of Foreign Direct Investment on Economic Growth: Empirical Evidence

Abstract

Foreign direct investments are an instrument widely used by countries, both developed and emergent, to achieve their economic development. Among others benefits, discussed in the specialized literature, investment inflows accelerate production, improve productivity, facilitates the transfer of technology, raise the qualification oh human capital, contributes to create new jobs and to boost the economic growth of the host countries. The main purpose of the research is to examine the short and long runs relationships between foreign direct investment (FDI) and economic growth in Algeria. To carry out our investigation, the time series data of the two variables are used over the period 1990-2023. This period covers the span time in which data on the volume of foreign direct investments are available. To achieve the research purpose, an ARDL model is built based on the unit root methodology of the Augmented Dickey Fuller and Phillips  Perron tests. The findings of the study show that the foreign direct investment (FDI) and economic growth are cointegrated, indicating the existence of a long relationship among them. They establish also that foreign direct investment (FDI) has a positive impact on economic growth. Building on the research results, Algerian decision makers should take the required actions to improve the climate business, making it more attractive for foreign investors.