RELATIONSHIP BETWEEN FOREIGN DIRECT INVESTMENTS, OPENNESS AND ECONOMIC GROWTH: EVIDENCE FROM DEVELOPING COUNTRIES

Abstract: The importance of free international movement of capital and openness to
trade on the world market is very well known and elaborated in the relevant literature.
Despite the fact that the most developed countries in the world are the carriers of international
capital movements, especially through foreign direct investments, the inflow
of foreign capital through foreign direct investments (FDI) is one of the key goals that
developing countries set through their development strategies. In this way, developing
countries strive to make their economies attractive for the presence of foreign capital
in order to increase the level of production and raise the level of employment. What
distinguishes developing countries is the high participation of foreign trade. Unlike
large economies, which are said in the literature to be self-sufficient, small economies
with insufficiently developed economies are nevertheless able to compete on the global
market. The subject of research in this paper was to investigate the impact of FDI inflows
on the economic growth of developing countries. The research covered 82 developing
countries in the period from 1980 to 2020. In the paper, Fully Modified Ordinary
Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS) methods were
used to examine whether FDI viewed through the share of inflows in GDP and openness
viewed through the share of total exchange in GDP increase GDP per capita in
developing countries. The obtained results with a high level of statistical significance
testify in support of the conclusion that FDI and openness to foreign trade increase
GDP per capita in developing countries.

 

Keywords: foreign direct investments, international movement of capital, economic
growth, developing countries, openness