Endogenous determination of FDI growth and economic growth: the OECD case

Abstract

This paper tests the endogenous relationship between Foreign Direct Investment (FDI) growth and economic growth using a panel data set for 23 Organisation for Economic Co-operation and Development (OECD) countries for the period 1975-2004. In particular we estimate a two-equation simultaneous equation system with the Generalised Methods of Moments (GMM) that treat economic growth and FDI growth as endogenous variables. We find that FDI growth and economic growth are significant determinants of each other. We also find that export growth rate and human capital are statistically significant determinants of both FDI growth and economic growth. Our findings lead us to conclude that FDI growth and economic growth have an endogenous relationship.FDI growth; foreign direct investment; economic growth; panel data; generalised methods of moments; Organisation for Economic Cooperation and Development; OECD; two-equation simultaneous equations; endogenous variables; significant determinants; exports; human capital; statistics; endogenous relationships; public policy; governance.