Cross-Country Investigation Of The Effect Of Trade Openness And Foreign Direct Investment On Economic Growth In Developing Countries

The study aims at investigating the effect of trade openness and FDI and economic growth in developing countries.Previous studies have found contradictory results on the effect of the two variables on economic growth with some finding a positive relationship while others found a negative relationship.Most of these studies have focused on regionbased studies hence being not very conclusive on the developing country perspective.The study therefore endeavored to establish if trade openness and FDI are economically beneficial in developing countries.The study will use secondary data that will be sourced from the World Bank and FAOSTAT.The data covered 103 developing countries for the period 2000 to 2020.The panel data was analyzed using the STATA software program.Hausman test was used to determine if fixed effects estimations were preferred to random effects estimations.According to the first empirical model,gross national expenditure,gross capital,overall trade openness,population and labor were positively correlated to economic growth and was statistically significant.On the second empirical model,Gross capital,gross national expenditure,exports of goods and services,labor,imports of goods and services,and total population were positively correlated and statistically significant.On the third empirical model,Gross national expenditure,overall trade openness,exports of goods and services,gross capital,labor,population and Imports of goods and services were positively correlated to economic growth and statistically significant.FDI was found to be negatively correlated to economic growth but statistically significant.This result was not as expected and therefore conflicting.It is recommended that the governments formulate policies that facilitate trade openness of these developing countries.They should encourage wealth creation by formulating incentives that encourage both citizens and foreigners to be geared towards wealth creation and development in the developing countries.Secondly,Gross national expenditure should be directed towards public goods such as health and education to the population,which implies that a healthy and educated population leads to a better economy.National expenditure should be allocated on capital creation projects in developing countries.Domestic governments should encourage technology transfers through FDI to have substantial spillover effects for the entire economy of the developing countries.It is recommended that the domestic governments encourage the importation of essential imports meant to boost production in domestic countries.