Foreign Direct Investment and Economic Growth

Abstract

The role of FDI on economic growth has been debated for a long time. A key issue for related studies is to find a channel to promote economic growth in the host country, as well as to find the effect of FDI itself. This study assumes there could be structural differences in the effect of FDI on economic growth in host countries. This study investigates whether activity of financial markets in the host countries could be assumed as a precondition in enhancing economic growth in the host countries of FDI. In this study, it is concluded that FDI has a positive effect on economic growth and that structural difference of FDI effect still holds, while activity of deposit money banks and other financial institutions is positively related to economic growth but insignificant.

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