Browsing by Author "Aho, Lauri-Pekka"

Foreign direct investments (FDI) has been recognized as an important tool for economic growth in developing countries in past literature. However, its effects within developed countries are relatively unknown due to limited research focusing on the subject, despite the fact that the majority of FDI inflows occur between developed countries. This study aims to examine the effects of foreign direct investments on growth in developed countries. The time frame used in this study ranges from 1993 to 2007. The panel data set utilized in this study consists of 29 OECD members. In addition to the full data set, a further data set consisting of countries classified as International Monetary Fund (IMF) advanced economies in 2007 is examined to address issues generated by data outliers in the full 29-country sample. Averaged data is also used as a comparative measure. A large majority of the data in this study originates from the World Bank's World Development Indicators database. The panel data is analyzed with a fixed effects panel linear regression model. Year and country are considered as the fixed effects in this study. FDI is included together with other relevant variables as explanatory variables to study how they affect the dependent variable, gross domestic product per capita. Lagged values of FDI up to third lag are also included in the later versions of the model. The results suggest that FDI presents a positive, yet statistically insignificant effect on the growth of GDP per capita in developed countries when considering the chosen 5 percent significance rate. Similar results are consistent across all three models used in the study. Unlike the contemporary variable, the lagged FDI variables yield interesting results as they present a statistically significant effect on growth, suggesting that the growth effect might not be immediate.