Contrairement aux résultats de beaucoup de chercheurs qui ont trouvé une relation directe entre les investissements directs étrangers et le produit intérieur brut; les résultats de l'analyse de la cointégration ne trouvent aucune relation directe entre les investissements directs étrangers et le produit intérieur brut.Ce sont les effets induits par les investissements directs étrangers qui impactent le produit intérieur brut.
The analysis shows that GDP and FDI are auto collated to the previous values. The analysis also confirms that there is no long term relationship between GDP and FDI. As consequent, foreign direct investment does not affect, directly, gross domestic product. The consequence of FDI can have positive impact on GDP (reduction of unemployment, increase in production of goods and services, increase in tax collected, increase in investment,increase in exportation, etc). The result shows that investors do not consider GDP only while analyzing market because regions with high GDP did not get highest FDI.
Good work; am in agreement with your value-based findings.
The productivity foundation of a given economic entity cannot be built on the influx of foreign capital (money), although this can (must not) have a stabilizing effect on the respective economy and the specifics of the investment case.
Milan, Thank you for you valued comment. However, all that you mentioned are the consequences of FDI. Rember GDP is the value of goods and services produced by a country at time considered. You can see that you can not include FDI in the calculation of GDP. That's why, I said FDI has no impact on GDP.
Milan B. Vemić
Stephen I. Ternyik Niyungeko AntoineLook at this way, Niyungeko Antoine , to have economic activity of one sort or another, you need to have land, labor, capital and entrepreneurship. Foreign direct investors, depending on who they are, could bring to the tables anyone or any combinations of the above except land. In a round about way, yes FDI has an impact on economic activity. The difference is the quantum and the time horizon, long versus short term.
Concerning land Kheepe Lawrence Moremi , we have to note:
https://www.thenational.ae/business/property/africa-a-land-of-opportunity-for-property-investors-1.199556
https://www.colorlines.com/articles/wall-streets-africa-land-grab
https://www.un.org/africarenewal/magazine/special-edition-agriculture-2014/africa%E2%80%99s-land-grabs
Dear Mr. Antoine!
I think it is important to build upon your work - for the benefit of EU and developing countries like Albania. Benchmarking - summarising best lessons lerarned fron previous studies is a way the work will be carried out:
1) Khun Sokang (2018). "The Impact of Foreign Direct Investment on the Economic Growth in Cambodia: Empirical Evidence" International Journal of Innovation and Economic Development Volume 4, Issue 5, December 2018, Pages 31-38 Available at:
Article The Impact of Foreign Direct Investment on the Economic Grow...
2) Donny Susilo (2018). "The Impact of Foreign Direct Investment on Economic Growth (a Causal Study in the United States) Jurnal Pendidikan Bisnis dan Ekonomi e-ISSN 2548-7175 | Volume 4 Nomor 1 (2018 Available at:
Article The Impact of Foreign Direct Investment on Economic Growth (...
3) Chia-Nan Wang & and Anh Phuong Le (2019). "Application of Multi-Criteria Decision-Making Model and GM (1,1) Theory for Evaluating Eciency of FDI on Economic Growth: A Case Study in Developing Countries" Sustainability 2019, 11, 2389; doi:10.3390/su11082389 Available at: enclosed
Yours sincerely, Bulcsu Szekely
Dear Bulcsu, Thank you for your sharing.However, i do not agree with some article, correlation does not men causality as it is used by some research. I agree that FDI have impact on economic activity. But, FDI has no direct impact on GDP,this is my finding.
Stephen I. Ternyik
I think you missed my point. Foreign Direct Investment and the specific people behind it, whether multinationals, financial investors etc., contribute to economic activity by taking with them 3 of the 4 key ingredients required to stimulate economic activity into an investee country.
In doing so, they could exploit exploit the land that they find in a target country, the consuming class in the case of consumer packed goods companies etc., This is the point. Investments in the primary sectors as well as in travel, tourism and leisure or any other, are known and taken as read.
The question Niyungeko Antoine is asking is a well known and an age old debate in the investment promotion space and a valid one. The point above, without getting into details, is one example of one view. As an example, one school of thought argues that in the short run, FDI benefits and invest company, but in the long run it does not.
In the short run, cash flows into a country through FDI, but in the long run, more cash flows out when MNC's repatriate profits and dividend to the home country of the investing company.
Kheepe Lawrence Moremi My point was your mentioning of foreign investors, concerning land as production factor ('any combinations of the above except land';visit your post above). My point is that even land can be bought; the links were targeted at African conditions, but I could also have mentioned the 'new colonialism' in Eastern Europe after the border openings in 1989. Such economic activities , to use your terminology, are not welcomed by every national economy, depending on the political agenda.
Stephen I. Ternyik
You are still missing the point. The point was about inbound flows into a target country. Land does not flow into an investee country but all other 3 elements do.
FDI investors do bring onto the table, land. They bring everything else but land. The fact that they can buy land or rights etc., has not relevance to the point I made above.
Stephen I. Ternyik Niyungeko Antoine
Do not bring land onto the table, but bring everything else. This is what the above should have read like above.
Anyway, I have made my point. Let me give other people a chance and detract the main question that Niyungeko Antoine raised above.
In closing, Niyungeko Antoine , I worked in this space in my previous life. I know the sensitivities and the debates.
This significantly depends on the country in which the investment is directed
Yes, foreign direct investment has a direct impact on GDP. Not only because empirical analyses may show correlation between the two but mainly because economic theory establishes causation between the two. If investment (foreign or domestic) does not affect GDP then what does? A nice example is Ireland vs. Greece (my country). Ireland opened up its economy to FDI in the 90's whereas Greece did not. The result is that the large flow of FDI in Ireland has contributed to the exploding increase of its GDP. Ireland in early 90's had a per capita GDP lower than Greece. Now Ireland has one of the highest per capita GDP in the European Union. On the contrary, Greece has one of the lowest.
Athanasios, thank you for your opinion. But, may be you missed my point. As I mentioned it, GDP and FDI are strongly correlated. However correlation does not mean causality. Remember how to calculate GDP, do you include FDI? What improve GDP it is the result of the investment because GDP is the value of goods and services produced not the value of FDI. this one is not included in calculationof GDP.
Yes, FDI has a direct impact on GDP. The GDP calculation has an investment component which includes amongst others, fixed investment which is factories. When foreigners set up factories and install machineries it will be included here. There are indirect effects like employment and use of transportation, utilities and land purchases. So, FDI has a big impact on some countries GDP where there is no domestic investments.
Theoretically and very often actually: yes. If you are looking for a theoretical summary perspective, please consider: Article The Role of Foreign Direct Investment in Economic Growth. Th...
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Good morning. Perhaps the starting point should be to define FDI, before trying to answer a complex question. Let’s differentiate three types of FDI: portfolio investment, Merger and acquisition and green field investment.
Portfolio investment should not have direct impact on GDP except for its Balance of Payments effect if the recipient country is short of hard currency.
M&A should not have short term effect but are expected to have long run epositive impact, at least at micro level (better management, better access to export market through the lead-firm, etc.)
Green field investment should have both long run effect (same as M&A but stronger because it adds to the existing stock of capital) and short term through the GDP identity.
Continuing my previous post: any short term impact on GDP through domestic investment and Leontief multiplier (new investment being an external positive shock on final demand) may be neutralised if the investment goods are imported. So, most of the positive effect occurs at micro level and it is very difficult to measure it at macro level. First because the data are very bad, second because the models will probably be misspecified and suffer from endogeneity in absence of control groups.
Foreign direct investment can affect anything. For example, the intensity of individual construction. Or the size of your Swiss Bank account. Anything can happen. In General, investments should make sense not only for the investor, but first of all for the real sphere of the economy in which they are directed. Usually they forget about it at all
My dear colleagues,
I think, in discussing the correlation between FDI and GDP, we need to take into account the level of development of the destination countries. As we all aware, the main driver of FDI is the difference of cost of production between the source and destination countries. The wider the gap of the cost of production between the countries, the higher the flow of FDI. Thus, it is understandable that more FDI flows to less developed countries. There are several factors affecting this phenomenon. Firstly, the price of factors of production is much lower which creates wide gap of cost of production. Secondly, the capital formation in the destination countries is still low. Accordingly, FDI is very welcomed, especially those with advanced technology. And, there is usually no competition from local firms. Thirdly, the government of less developed countries usually provide incentives, such as tax holiday, to attract FDI. And lastly, exports from less developed countries enjoy preferential tariff in developed countries.
The flow of FDI in developed countries is quite different. While FDI in less developed countries concerns more about the gap of cost of production, FDI in developed countries concerns more about the market. In many cases, avoiding high tariff becomes the main motive for FDI in the developed countries. Therefore, it is common that FDI in developed countries face fierce competition from local firms.
Furthermore, in term of total value, there is no much difference between FDI in less and developed countries. Yet, the number of FDI projects in less developed countries far exceeds those in developed countries. It is reasonable since FDI projects in less developed countries are mostly labor intensive, while those in developed countries are mostly capital intensive with high technology. Thus, even though the total value of FDI in less and developed countries does not shows much difference, the pattern of the projects does.
In a nutshell, the level of development of the destination countries plays a crucial role in determining the pattern of FDI, but not the total value.
Do foreign direct investments have direct impact on gross domestic product?
A few decades ago FDI was considered by many economists in the field of economic development as a means of exploitation of LDCs by developed countries. This was especially true when capital intensive firms were investing in
LDCs that they needed labor intensive industries to absorb unemployed workers. Such criticism is hardly heard nowadays. In the US states compete against each other states to attract investment.They offer many benefits such as tax breaks. At the international level one of the the most successful cases is the US and UK FDI in high tech industries in Ireland. Highly trained English speaking labor force, low corporate tax rates, and the location of Ireland near continental Europe and the UK transformed Ireland rapidly from a developing to a developed country.
Technically yes, but there are many countries with high FDI and low GDP, think of post-colonized nations. Slowly the FDI may decline as they start to invest in other countries.
May be yes FDI has proportional impact on GDP but you have to think in reverse, if foreign investors come to your mother country for investments, what are all the downfalls happens to your natural resources and your culture, Its just my opinion.
Important in this case is the size of the economy and the consumption factor. Small economies compensate for low consumer demand with foreign capital. This is my opinion on this issue.
Yes it have, and Hubert Escaith has given detail explanation. Thank you.
I'll just simply say that it depends on the motive behind the FDI (market-seeking and efficiency-seeking) and the type of FDI (Horizontal). I am studying the impact of FDI on local firms and the ways the linkage between foreign firms and local firms takes place. I believe that FDI can increase the productivity of local firms. Like someone said already, FDI is part of the GDP component, it will have an impact on GDP but I will add that the most important thing is how significant that impact is.