FDI, Economics Freedom, and Growth in the devevloping countreiss

Abstract: This study focuses on the relationship among economic freedom, foreign direct investment and real per capita growth. We first study the relationship between economic freedom and FDI. Then investigate the effects on the growth with foreign direct investment and four indicators from the Heritage Foundation index, government spending, monetary freedom, business freedom, and trade freedom. The panel data of 91developing countries in the period of 2000-2017 are used. The fixed effect least squared dummy variable model is employed. First, we find that overall score of economic freedom has the positive and the significant sign of the impact on FDI. In more details, only the government spending, monetary freedom, and trade freedom seems to be the most relevant. Second, we find that the FDI insignificantly affects the growth in the countries of consideration. However, economic freedom such as trade freedom and monetary freedom are important to the growth. The policy implication is that enhancing the economic freedoms rather than the foreign direct investment might be beneficial to economic growth in the developing countries.