Does foreign direct investment affect the growth rate in developing countries? The empirical evidence for the period 1970-2004

This paper examines whether foreign direct investment (FDI) affects economic growth in developing countries within the standard neoclassical growth framework, based on data for 127 developing countries over the period 1970-2004. Both Ordinary Least Squares (OLS) and dynamic panel data estimation with fixed effects are used to assess this relationship. The results suggest that FDI does have direct positive effects on economic growth, and the effects of FDI are not contingent on the “absorptive capacity” of recipient countries.