The Impact of Foreign Direct Investment on Economic Growth in Host Countries

This paper investigates the effects of Foreign Direct Investment (FDI) on economic growth. For this purpose we have set up a panel data for 67 countries during the years 1980-2004.All of these countries have been successful in absorbing FDI during this period. Since socio-economic characteristic of these countries is diametrically different, we have classified our sample into four groups as follows: a)Countries which their performance indicators in absorbing FDI is higher than their potential indicator for absorbing FDI, b)the developing countries that have good performance in absorbing FDI, c)Non-oil developing countries that have good performance in absorbing FDI, d) Some oil producing countries such as Iran, Saudi Arabia, Nigeria, Indonesia, Algeria and Venezuela. To test our hypothesis on positive effects of FDI on economic growth we have benefited from Mankiw, Romer, &Weil (1992) model. The results of our estimates shows that:Firstly, in all countries there is a positive relationship between FDI and growth,Secondly, the magnitude of the effect decreases when we move from the first group to the fourth group. Specially it is worth mentioning that there is a significant difference between oil and non-oil countries. Actually in the oil producing countries the determinants of growth has been significantly different compared to the other developing countries.