Interlinkages between FDI Inflow and Economic Growth

Abstract

The paper investigates into the connection between foreign direct investment (FDI) on the one hand and economic growth (GDP) on the other, over a long period of time, almost half a century, from 1970 to 2017. The key insights derived from this study are, firstly, that there is long run association between FDI and economic growth, secondly, FDI inflow causes and affects economic growth, and finally that economic growth does not spur FDI at national level. However at the state level, economic growth plays pivotal role in the location of FDI which implies that the selection of state is done on the basis of economic growth, that is Gross State Domestic Product (GSDP). Therefore in the long run and at the national level, policies should be directed towards the encouragement of FDI inflow, in order to boost economic growth. States should enhance their infrastructure and economic growth in order to enhance their share in total FDI.