Abstract
We document past, present, and future of FDI trend in recent decades that goes substantially beyond the advanced economies. This rigorous study also examines the influence of FDI on economic growth using macro variables for a global perspective. Six macro variables namely, FDI, physical capital, trade, human capital, labor force, and infrastructure were used in this study. We did a panel analysis on data from 2002 to 2017 and used rigorous two-way fixed effect model. This study finds that both FDI and trade openness enhance economic growth. Open door policies are more beneficial for the entire world; capital also plays a significant role in this process. Further, FDI plays a role with human capital but vocational training, skilled labor force and education are the most important factors to attract FDI. In the last decade, overall sub-Saharan African, EU and Central Asia, Latin America and Caribbean regions have observed a significant economic growth through FDI. The future of FDI in a high populated area is very gleaming. The overall result indicates that FDI accelerates economic growth in the globe.
Highlights
Economic growth which is defined as “the sustained rise in quality and quantity of the goods and services produced in an economy (Schutz, 2001)” provides foundation for the bright future of society and considered as the most influential driver of poverty reduction in the developing countries
It is interesting to note that Foreign Direct Investment (FDI) is significant at 5% in South Asia; 10% in Latin America and Caribbean; 5% in EU and Central Asia, 1% in sub-Saharan African
The results indicate that most regions are attracting FDI inflows
Summary
Economic growth which is defined as “the sustained rise in quality and quantity of the goods and services produced in an economy (Schutz, 2001)” provides foundation for the bright future of society and considered as the most influential driver of poverty reduction in the developing countries. It is widely acknowledged that economic growth is geared by capital formation through modern industrialization in developing countries. Every country requires savings for investment and foreign exchange for purchasing capital machinery to be used in modern industries. The domestic investment could enhance the economic growth but in the case of developing countries, financing of domestic investment has remained greatly constrained because of the scarcity of domestic resources. In this situation, Foreign Aid (FA) and Foreign Direct Investment (FDI) become valuable instruments for capital formation and for achieving economic growth. Sattar (1999) observed that FDI is a fundamental and important component of long-term sustainable growth in Bangladesh
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