Unleashing Economic Potential: Decoding the Fdi-economic Growth Nexus in G-15 Economies Amidst Unique Host Country Traits

Abstract

Abstract The study aims to examine the impact of Foreign Direct Investment (FDI) on Economic Growth in G-15 countries while considering the influence of key host country characteristics, namely Macroeconomic Stability, Financial Development, Human Capital, and Trade Openness. The selection of these variables is supported by both theoretical foundations and empirical studies that highlight their significant role in shaping the FDI-growth interconnection. Panel data derived from World Bank Indicators, spanning the period from 1989 to 2021 are analysed using a Feasible Generalized Least Squares method (FGLS). The findings demonstrated that increased Financial Development, Human Capital, and Trade Openness enhanced the positive effects of FDI on economic growth. However, Inflation has a negative effect on growth. Policymakers in these nations should give precedence to developing strong financial markets, promoting trade liberalization, and investing in human capital to optimize the advantages of FDI. This research addresses a critical gap in the literature as limited empirical work has been conducted on the FDI-growth relationship specific to the G-15 economies. By employing rigorous panel data methodology and a long-term dataset, this study provides original insights into the interaction between FDI and host country characteristics, contributing to the existing body of knowledge.