How Does FDI and Economic Growth Affect Each Other? The OECD Case

Abstract

This paper tests the endogenous relationship betwee n FDI and economic growth using a panel dataset for 23 OECD countries for the period 1975-2004. Following the literature, we treat economic growth and FDI as endogenous variables, and estimate a two-equation simultaneous equation system with the generalized methods of moments (GMM) for the OECD case. We find that FDI and growth are important determinants of for each other. We also find that export growth rate is statistical ly significant determinant of FDI and economic growth. Our results indicate that there is an endogenous relationship between FDI and economic growth.

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