Impact of foreign direct invesments on economic growth: A case of developing countries

There was a limited interaction among countries until the liberalization movement in the 1980s. With this movement, direct and indirect investments had been made in underdeveloped or developing countries in order to utilize capitals held by multinational companies owned by especially developed countries. Foreign Direct Investments (FDI) have been directed to particularly developing countries. With the liberalization, developing countries have been working hard to attract FDI inflows. The idea of the positive effect of FDI on economic growth is one of the important reasons for this hard work. Although the literature shows that foreign direct investments have a positive effect on economic growth, there are different results in the field. This study focuses on the effect of foreign direct investment on economic growth in developing countries including Turkey, Argentina, Brazil, China, India, Indonesia, Saudi Arabia, South Africa and Mexico which are also among G20 countries using panel data analyses in the period 1990-2018. Using panel data analysis, it is found that FDI has a positive and statistically significant effect on economic growth. Export has also a positive effect on the growth whereas R&D expenditures have a negative effect. Due to the fact that FDI can be considered as a transfer tool for technology, we suggest that the importance of FDI destination needs to studied for future analysis. Keywords: FDI, Economic Growth, Liberalization, Capital Accumulation, Panel Data Analysis.