Title: Revisiting the dynamic effect of foreign direct investment on economic growth in LDCs

Authors: Md. Al Mamun; Kazi Sohag

Addresses: Department of Economics and Finance, VIC 3083, Australia ' Institute of Climate Change (IKP), Universiti Kebangsaan Malaysia (UKM), 43600 Bangi, Selangor D.E., Malaysia

Abstract: The relationship between foreign direct investment (FDI) and gross domestic product (GDP) has long been considered as an unresolved debate in growth literature. Scores of studies have highlighted ambiguous conclusion regarding the exact effect of FDI on economic growth among the recipient countries. Though transfers of technologies, development of financial sectors across the world including in the LDCs have promised a positive role of FDI in the LDCs, however, lack of transparency, accountability, widespread corruption including the motivation of the MNCs have always clouded the outcome. Using most robust methodologies for panel data, this study concludes that LDCs thrive towards growth appetite can very little be fulfilled with FDI, rather domestic fixed capital formulation, efficient use of the existing abundant labour force can foster the economic growth much aggressively even in the long run.

Keywords: dynamic panel analysis; economic growth; foreign direct investment; FDI; LDCs; non-monotonic relationship; gross domestic product; GDP; least developed countries; technology transfer; transparency; accountability; corruption; domestic fixed capital formulation; existing labour force.

DOI: 10.1504/IJEPEE.2015.069591

International Journal of Economic Policy in Emerging Economies, 2015 Vol.8 No.2, pp.97 - 118

Available online: 27 May 2015 *

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