Does FDI Contribute to Economic Growth?

Knowledge About The Effects Of FDI Improves Negotiating Positions And Reduces Risk For Firms Investing In Developing Countries.

Mina N. Baliamoune-Lutz

Mina Baliamoune-Lutz is Assistant Professor of Economics in the Coggin College of Business-University of North Florida where she has taught international economics, macroeconomic, and statistics and managerial economics for MBAs since 2000. She holds a BS in Management from L’Institut Supérieur de Commerce et d’Administration des Entreprise (ISCAE) in Casablanca-Morocco, an MBA and a PhD in Economics from Northeastern University. Her current research focuses on the effects of institutions, trade, and FDI on African and Arab economies. She may be contacted at mbaliamo@unf.edu.

Using data from an Arab country, this paper shows that foreign direct investment (FDI) contributes to higher growth both directly and indirectly through its effects on exports. Knowledge of the positive influence of FDI on growth could enable businesses to have a stronger negotiation position vis-à-vis the host country. Drawing on the findings and the methodology in this paper, business decision-makers could enhance their measurement of expected risks by estimating the effects of increased FDI to the host country. The results also highlight the potential for FDI to contribute to political stability through efficient allocation of corporate resources.

This paper is a part of an ongoing research on the effects of trade and reforms on Arab and African economies. A more extensive study of these issues is published in Baliamoune (2002). The author conducted research on globalization and growth at the World Institute for Economic Development Research (WIDER), in summer 2002.

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