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How Does FDI And Economic Growth Affect Each Other? The OECD Case

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Executive Summary

This paper tests the endogenous relationship between FDI and economic growth using a panel dataset for 23 OECD countries for the period 1975-2004. Following the literature, the authors treat economic growth and FDI as endogenous variables, and estimate a two-equation simultaneous equation system with the Generalized Methods of Moments (GMM) for the OECD case. They find that FDI and growth are important determinants of for each other. They also find that export growth rate is statistically significant determinant of FDI and economic growth. The results indicate that there is an endogenous relationship between FDI and economic growth.

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