Foreign Direct Investment and Economic Growth: A Comparative Analysis of Developed, Developing, And Least Developed Countries
Ms. Devi S Nair
Assistant Professor, Faculty of Management Studies, CMS Business School, Bangalore
Subrahmanya Udupa V,
MBA student, Faculty of Management Studies, CMS Business School, Bangalore,
Email: subrahmanya_udupa23@cms.ac.in
Abstract:
Foreign Direct Investment (FDI) is widely recognized as a critical component of economic growth; however, its influence varies among developed, developing, and least-developed countries (LDCs). Global FDI flows reached over $1.3 trillion as of 2023, with developed countries receiving the largest share. Developing and LDC economies, on the other hand, faced structural obstacles when it came to using FDI to achieve sustainable growth. Policymaking requires an understanding of how FDI supports economic growth across various economic categories. The purpose of this study is to examine how FDI affects GDP growth in these three economic sectors. The main objectives are determining the degree to which foreign direct investment (FDI) affects economic performance and spotting the main macroeconomic factors affecting this link. With panel data for 30 selected nations from 2005 to 2023, this paper investigates the relationship between foreign direct investment (FDI) and GDP growth using Pooled Ordinary Least Squares (OLS) Regression, descriptive statistics, and correlation analysis. Independent variables are trade openness, inflation, political stability, government spending, R&D investment, debt levels, and unemployment. Developed nations exhibit low inflation, strong institutions, and high trade openness together to show economic stability. Although developing countries have modest increase, they suffer with labour market volatility and financial restrictions. Least developed nations battle with fiscal risks, poor institutions, and inflation. Economic development is much influenced by public expenditure and institutional quality.
