Foreign Direct Investment and Economic Growth in the Short Run and Long Run: Empirical Evidence from Developing Countries

Trang Thi-Huyen Dinh, Duc Hong Vo, Anh Vo and Thang Cong Nguyen
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Trang Thi-Huyen Dinh: AMV Business Advisory and Training, Ho Chi Minh City 70000, Vietnam
Duc Hong Vo: Business and Economics Research Group, Ho Chi Minh City Open University, Ho Chi Minh City 70000, Vietnam
Thang Cong Nguyen: Business and Economics Research Group, Ho Chi Minh City Open University, Ho Chi Minh City 70000, Vietnam

JRFM, 2019, vol. 12, issue 4, 1-11

Abstract: A contribution of foreign direct investment to economic growth is possibly one of the widely examined topics in academic research in the last five decades. However, few studies have examined both the short run and long run impacts of this effect concurrently for developing and emerging markets, in particular during the period of economic turmoil that includes the global financial crisis. As such, this paper examines and provides additional and relevant quantitative evidence on the impact of foreign direct investment (FDI) on economic growth, both in the short run and the long run in developing countries of the lower-middle-income group in 2000–2014. Various econometric methods are employed such as the panel-based unit root test, Johansen cointegration test, Vector Error Correction Model (VECM), and Fully Modified OLS (FMOLS) to ensure the robustness of the findings. The results of this study show that FDI helps stimulate economic growth in the long run, although it has a negative impact in the short run for the countries in this study. Other macroeconomic factors also play an important role in explaining economic growth in these countries. Money supply has a positive effect on growth in the short run while total credit for private sector has a negative effect. In addition, long-run economic growth is driven by money supply, human capital, total domestic investment, and domestic credit for the private sector. Based on these results, recommendations for the governments of these countries have been developed.

Keywords: foreign direct investment (FDI); economic growth; endogenous growth; developing countries (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (53)

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