Is Foreign Direct Investment a Real Driving Force of Economic Growth A Panel Data Analysis

Abstract

The purpose of this empirical study is to find the relationship between
economic growth and foreign direct investment (FDI) in the Commonwealth
of Independent States (CIS) and Central and Eastern European Countries
(CEECs) using endogenous technological change model. First, we combine
the CIS and CEECs into one group to test our hypothesis, and then we test
each group separately to account for heterogeneity and draw a conclusion
whether FDI is indeed a driving force of the economy. Panel data have been
used from 2003 to 2014 and different panel estimation methods have been
applied. Additionally, we use the Generalized Method of Moments (GMM)
panel estimator to control for endogeneity problem. The present study finds
that FDI is an important factor explaining economic growth in the pooled group
and CEECs, although it is not significant in the case of CIS.