FDI Inflows and Economic Growth: A Novel Application of Dose-Response Functions

Alessandro Cusimano, Chiara Paola Donegani, Federico Fantechi, Eun Sun Godwin


In this work we estimate different dose-response functions linking FDI inflows received by developing countries with their economic growth. Although the impact of FDI on the economic growth of host countries has been widely investigated in literature, findings have been ambiguous. Our study proposes a novel ‘dose-response’ approach which allows the response of recipients to different amounts of treatment in terms of FDI inflow to be observed. Our findings show that the estimated dose-response functions are statistically significant for treatment values greater than 20%, after the treatment has been rescaled to a percentage measure of the maximum dose observed, and increasing at a decreasing rate, therefore suggesting three relevant results: a) a country receiving a greater amount of FDI inflows will present a higher economic growth; b) there might be a minimum amount of FDI inflows required to reach some policy effectiveness; c) the initial amounts of FDI inflow are more effective than the subsequent ones. Results will help policymakers to better isolate the effect of FDI on economic growth and conduct informed FDI cost-benefit analysis.

Full Text:


DOI: https://doi.org/10.5296/rae.v16i1.21607

Copyright (c) 2024 Alessandro Cusimano, Chiara Paola Donegani, Federico Fantechi, Eun Sun Godwin

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.

Research in Applied Economics ISSN 1948-5433

Email: rae@macrothink.org

Copyright © Macrothink Institute   

To make sure that you can receive messages from us, please add the 'macrothink.org' domain to your e-mail 'safe list'. If you do not receive e-mail in your 'inbox', check your 'bulk mail' or 'junk mail' folders.