Outward FDI and economic growth

Abstract

Purpose The purpose of this paper is to examine the impact of outward foreign direct investment (FDI) on economic growth. Design/methodology/approach Two econometric approaches are used: cross‐country regressions for a sample of 50 countries and time‐series estimators for the USA. Findings Both approaches tell the same story: outward FDI is positively associated with growth. This finding is robust to several model specifications, potential outliers, and different estimation techniques. In addition, Granger‐causality tests for the USA indicate that causality is bidirectional, suggesting that increased outward FDI is both a cause and a consequence of increased domestic output. Originality/value Previous studies have primarily examined the firm‐ and industry‐level effects of outward FDI – for example, on domestic investment, employment, and productivity. This paper, in contrast, deals with the effects of aggregate outward FDI on the economy as a whole.

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