Foreign Direct Investment, Financial Development and Their Impact on the GDP Growth in Low-income Countries

ABSTRACT

This essay empirically studies the effects and causal links between foreign direct investment (FDI), financial development (FD) and economic growth. The sample consists of the main economies of low-income countries and the study covers the period 1990–2015. The results of the estimate show that, under certain specific economic conditions, FDI affects positively the level of long-term economic growth; it thus makes it possible to improve the economic situation of these countries. Using Johansen’s cointegration technique, the results find that FD; FDI and GDP growth are cointegrated, that shows the pursuit of the long-term equilibrium relationship between them. The error correction model confirms the existence of a double causal relationship between FDI and GDP growth, and between FD and FDI and between GDP growth and FD.

KEYWORDS:

• Financial development
• foreign direct investment
• economic growth
• ECM

JEL CLASSIFICATIONS:

• O16
• G21
• L11 and L25

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1 In 1990, net inflows of FDI amounted (in current US$ millions) to 207,455, 2845 and 1553 respectively at the global, African and West African levels. In 2010, the respective values were 1,243,671, 55,040 and 11,323. Source: UNCTAD (2011).

Additional information

Notes on contributors

Kais Saidi

Mr Kais Saidi obtained his Doctorate degree in Economics and Masters degree in economics and financial dynamics from the university of Sfax, Tunisia. He has 2 years of teaching and reseach experience in Tunisia and has many research publications published from different professional journals including Quality and Quantity, Energy Reports, Sustainable Cities and Society, American Journal of Energy Research, Journal of the Knowledge Economy, Environmental Science and Pollution Research, Progress in Nuclear Energy, Renewable and Sustainable Energy Reviews, International Jounal of Sustainable Energy, Environmental Earth Sciences, Journal of Economics Development, Environment Systems and Decisions. Mr Saidi attended several conferences and presented his scholarly.