Long Term Relationship between Foreign Direct Investment and Economic Growth

Abstract

In theory, foreign direct investment (FDI) results in economic growth through capital injections and foreign technology and other factors that come with it and change the production function of the host state. However, in the literature, there remains an ongoing discussion as to whether FDI affects economic growth at all. Many studies carried out by prominent researchers did not confirm such a relationship or approved it conditionally. In the paper, aiming to contribute to this discussion, the author examined the panel data of 73 countries with the dynamic linear model (DLM). The research confirms that FDI results in economic growth in the long term only.