FDI and Economic Growth: Combination of System Dynamic and Econometrics Approaches

Investment as a dynamic engine plays significant role in all theories of economic growth. So, attracting investment, whether national or foreign, has been focused on by economic authorities. Some countries, such as Iran, need to attract foreign investment as well as to compete for them, because of the numerous factors such as: globalization and inadequate domestic resources for investment. This study investigates the impact of economic factors on attracting FDI and its effect on economic growth by combination of system dynamic and econometrics approaches. In doing so, an economic model has been designed and simulated by using annual time series data from 1978 to 2007, with focus on various factors like exchange rate, and national investment. Moreover, the data are predicted until 2025 on the basis of simulated model. The result shows that FDI have positive and significant effect on economic growth.