The Efeect Of FDI On Economic Growth: A Comparative Analysis Of Developed And Developing Countries

Economic growth plays an important role on improving people’s living standards andenhancing the comprehensive national strength. FDI is one of significant factors toeconomic growth. Hymer put forward this concept and demonstrated the differencesbetween FDI and general international financial assets investment (indirect investment) in1960s, since then economists at home and abroad made lots of research about it. Over thepast twenty years, FDI made a rapid growth of the total in the global, especially more andmore FDI flows into the developing countries which abound with low labor costs andincreasingly open trade policy.What effects does FDI make on economic growth? Whetherare these effects consistent for developed and developing countries? We have to focus onthese questions.In order to study the effects which foreign direct investment have on economicgrowth, this paper makes use of statistical data of98countries during the period of1991-2010to do the empirical research on the relationship between foreign directinvestment and economic growth. Then it divides the samples into three groups-all countries, the developed countries and the developing countries. Through theestablishment of panel data model, this paper runs fixed effects regression and randomeffects regression, and chooses the appropriate regression by Hausman test.Finally, itintroduces the quadratic term of capital growth rate to do deep analysis. This paper findsthat, first of all, foreign direct investment promotes economic growth for now, and itpromotes economic growth greater for the developing countries than the developedcountries.Secondly, in the long-term, statistical results suggest the existence of an invertedU-shaped relationship between GDP growth rate and foreign direct investment growth rate,that is, when FDI growth rate exceeds a certain threshold, they presentreverse relationship.The policy implication of this paper is, in order to promote the economic growth of acountry, we still need to introduce foreign capital for now, but we should pay attention tothe quality of foreign capital during the introducing. At the same time, we should makeuse of foreign capital policies to properly guide the orientation of foreign investment.