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Foreign Direct Investment, Growth and Convergence Hypothesis: A Cross Country Analysis

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  • Jawaid, Syed Tehseen
  • Raza, Syed Ali

Abstract

This study investigates the relationship between foreign direct investment and economic growth by using seven years average annual data of 129 countries from the period of 2003 to 2009. Results indicate the significant positive relationships between foreign direct investment and economic growth in all countries, as well as in high, middle and low income countries. The foreign direct investment is contributing more in low income countries as compare to middle and high income countries. Results of unconditional convergence indicate that convergence exist in all, low, middle and high income countries. Results confirm that countries are coming together with respect to per capita income. Results of conditional convergence based on foreign direct investment suggest that the low and middle income countries are converging each other more rapidly. In high income countries the initial per capita income is remains negative and significant but the coefficient is almost similar in both conditional and unconditional models. This shows that chances of convergence in high income countries remain steady in the presence of foreign direct investment. On the other hand, in all countries model, coefficient is almost 60 percent higher in conditional model as compare to unconditional model. This indicates that with the existence of foreign direct investment, the overall countries are converging with the higher rate. In the light of above argument we can suggest to host country’s to make unproblematic policies to attract foreign direct investment to make efficient utilization of resources and, reduce output gap in the country.

Suggested Citation

  • Jawaid, Syed Tehseen & Raza, Syed Ali, 2012. "Foreign Direct Investment, Growth and Convergence Hypothesis: A Cross Country Analysis," MPRA Paper 39000, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:39000
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    References listed on IDEAS

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    Cited by:

    1. Navaratnam Ravinthirakumaran, 2014. "Applicability of Openness-led Growth Hypothesis in Sri Lanka," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 15(2), pages 241-263, September.
    2. Syed Ali Raza & Nida Shah & Imtiaz Arif, 2021. "Relationship Between FDI and Economic Growth in the Presence of Good Governance System: Evidence from OECD Countries," Global Business Review, International Management Institute, vol. 22(6), pages 1471-1489, December.

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    More about this item

    Keywords

    Foreign Direct Investment; Economic Growth; Cross Country Analysis;
    All these keywords.

    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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