Abstract
Foreign direct investment is considered a channel though which the benefits of technologies are transferred from developed to developing countries. Supporters of foreign direct investment and policymakers often ask the question: does foreign direct investment contribute to economic growth? According to economic theory, foreign direct investment can lead to higher economic growth, whereas the empirical studies have found mixed results. Some studies found foreign direct investment having positive, while others having negative effect on economic growth. The main goal of this study is to find if the mixed results on the effect of foreign direct investment on economic growth are because these studies do not distinguish among domestic conditions in the countries. The effect of foreign direct investment may be conditonal on the existence of various measures of economic development, such as, the initial level of gross domestic product, education, trade openness, democracy, and so on. Using secondary data, this paper will examine the relationship between foreign direct investment and rate of economic growth based on various domestic conditions in the developing economies. The results will have important policy implications in term of improving domestic conditions before reaping the benefits of foreign direct investment. Data for this paper will come from UNCTAD and World Bank World Development Indicators.