How does Foreign direct investment affect economic growth in the OECD countries? : A panel data analysis for the period 1996 and 2010 on FDI and economic growth

Abstract: Foreign direct investment (FDI) has since Dunning in the academic literature, by international organisations and countries been viewed as an important precursor to determine the level of economic growth. FDI is suggested to have a positive effect on long-run economic growth in the host country. Previous studies show evidence that the positive effect of FDI on economic growth should not be taken for granted. The extent to which FDI promotes economic growth is largely based on complementary factors which include among others human capital, education, infrastructure, health, population and a technology gap. This essay investigates and estimates the effect of FDI and human capital on economic growth in 28 OECD countries over the period of 1996 to 2010. Three regression were conducted. Our results show over the period studied a positive effect of FDI on economic growth, the result are not statistically significant in all regressions. Population is significant in all regressions but has a mixed effect on economic growth. Human capital proxied as secondary education attainment shows a mixed effect on economic growth and is not significant in all regressions. For the remaining independent variables (see table 7), the results show that Life expectancy and Government expenditure have a significant effect on economic growth. However, Trade is not statistically significant in the regressions.