Name of the professor: Essay Example

Foreign Direct Investment and Economic Growth in Australia:

A Causality Investigation Using Heterogeneous Panel Analysis


Relationship between economic growth and a foreign direct investment has been widely researched (Obwona, 2001). Different research findings have emerged in the relationship between FDI and economic growth in different studies and this has ignited more interest in the study of this particular subject. The determinant of externality led growth and endogenous discovery growth has brought new perspective in the study of, includes foreign direct investment as one of the determinant of growth in long run, and establishes the relationship (Obwona, 2001).

Conflicting ideas have emerged concerning the relationship between FDI and economic growth of a country. A two –way relationship between foreign direct investment and economic growth has been presented in some literature while other literature portray foreign direct investment as the only solution to the scarce resources on human capital and low productivity in most third world countries a position which is different in developed countries. Bahraumahah and Thanoon (2006) are among some of the scholars who have accepted the idea that foreign direct investment flow of human capital is capable of enhancing the economic growth of a country. Some other scholars have challenged the position arguing that there is no robust impact of FDI on the specific growth if the receiving country has no specific endogeneity of FDI inflow the resulting effects are taken into account.

The impact of foreign direct investments has been acknowledged recently with in different literatures indicating that it is an important and determinant that must be included when determining economic growth of a country. Rapid growth of an economy might attract more foreign direct investment through international companies as they look for new unexploited markets to maximized profit (Bahraumahah, and Thanoon, 2006). Through this, they come with human capital that is an integral part of economic growth.