Investigation the Effect of Foreign Direct Investment on Economic Growth with Emphasis on the Role of Natural Resources (Application of Threshold Regression Model in Panel Data)

The Relationship between economic growth and foreign direct investment (FDI) has been a subject of discussions for many researchers, economists and policy analysts in time. This study carried out to investigate the impact of FDI on economic growth. We consider the role of natural resources by using panel threshold regression model for 83 countries for 1996 to 2015 period. Research model formed based on Hansen’s (1999) suggested model and estimated by Wang’s (2015) proposed method for fixed effect models. Results of threshold regression model showed that natural resources, domestic capital formation, population growth rate and governance indicator has statistically significant effect on economic growth. Threshold level for natural resources variable is 28.58 percentage of natural resources’ export to total goods export. FDI variable has different effect on economic growth in different regimes. In the first regime it increase economic growth but in the second one, that natural resources is more than threshold level, FDI decrease GDP growth rate. This result approved “Resource Curse” problem posed by Auty (1993). Investigation of relationship between interaction variables and economic growth in another model revealed that interaction variable governance indicator and natural resources and also another interaction variable gross domestic capital formation and natural resources affect economic growth.
JEL Classification: C49, C89, F23, O47, P28