The Relationship between Foreign Direct Investment and Total Factor Productivity: The Case of Top 10 Oil Producing Countries

So many years countries, which were not in a good economic situation attempted to attract foreigner to invest and do business in their countries. The evidences show that this strategy would have a positive affect on Economic Growth as well as Total Factor Productivity of the host countries. This thesis examines the relationship between Foreign Direct Investment and Total Factor Productivity in short-term and long-term period between years 2011 and 2015 by using panel data analysis with the world’s top ten oil-producing courtiers as a sample. First Panel Unit Root Test is conducted to find whether variables are stationary or not. Then the Co-integration and panel error correction modeling tests are conducted to detect possible relationships between variables. Results suggest that in long-term period, Foreign Direct Investment affects Total Factor productivity of these countries in a positive way while in short-term period there is no affect. On the other hand Labor Quality Index doesn’t have any influence on TFP in both long-term and short-term period. Moreover, TFP merges to its long-term path significantly through its determinants, whereas it converges to their own equilibrium level. Keywords: Foreign Direct Investment, Total Factor Productivity, Labor Quality Index, Oil-producing countries, Panel Unit Root Test, Co-integration Test, Panel Error Correction Model