DOES FOREIGN DIRECT INVESTMENT LEAD TO ECONOMIC GROWTH? EVIDENCE FROM DEVELOPED COUNTRIES, DEVELOPING COUNTRIES, AND LEAST DEVELOPED COUNTRIES

Abstract

This paper investigates the impact of foreign direct investment on economic growth, on a sample of three groups of countries, classified according to the criterion of economic development. The research problem that seeks to be solved is defined by the question: Do foreign direct investment affect the economic growth of targeted countries and in what way? The objectives of the research are to explain the mechanism of functioning of foreign direct investment and the implications for macroeconomic growth parameters, ceteris paribus. The results of the research show the existence of correlation and determination of the dependent variable with the variations of the independent variable. In this way, the main hypothesis of the paper was confirmed, that foreign direct investment has a stimulating effect on economic growth and the effect of investment is a priori determined by the defined economic policy and the appropriate institutional and legislative framework of the countries, ceteris paribus. The methods used in this paper are regression analysis, i.e. simple linear regression, and analysis and synthesis of previous research and theoretical findings, in order to draw conclusions by induction. The analysis of the data confirms that foreign direct investments have an impact on the economic growth of each group of countries individually, but that in certain groups this connection is present. Thus, the results of the research showed the existence of a relation between FDI and economic growth, i.e. they emphasized FDI as a significant predictor of economic growth in the targeted groups of countries ceteris paribus. The paper represents the author's contribution to economic theory and practice, and to the general public, but also to decision-makers in developing countries. Further research should be directed towards whether it is possible to influence the increase of GDP by "copying" a certain country in terms of attracting foreigners.