The impact of the stock of foreign direct investment inflows and domestic investment on income: Empirical evidence from Australia, Germany, Brazil, and Turkey

According to all the economic growth models, the source of economic growth is domestic investment, DI, technological progress, ideas and innovation. Thus, countries design policies to stimulate these sources of economic growth. Unfortunately, sometimes DI and domestic technology are not sufficient to start economic growth process, hence, policy-makers design policies to attract foreign direct investment, FDI to fill the saving gap. While the impact Of DI on an economy is unambiguous, the impact of FDI on the economy of a host country is not clear-cut in the literature. It is due to this ambiguousness this thesis examines the impact of the stock of FDI inflows on aggregate income of Australia, Germany, Brazil and Turkey. To compare the productivity of DI and the stock of FDI inflows, the study also includes the impact of DI on aggregate income. The study used bounds testing approach to cointegration. In all the countries the results show that there exist cointegration among the variables, and the impact of DI on aggregate income is greater than the impact of the stock of FDI inflows in all the countries in both short-run and the long-run. While the impact of DI on aggregate income is positive and significant in all the countries, the impact of the stock of FDI inflows is mixed. Key words: Domestic investment, the stock of FDI inflows, economic growth, income, bounds testings, ARDL, Australia, Germany, Brazil, and Turkey