On effects of Foreign Direct Investment on Economic Growth

Through the individual fixed effects model, the article makes the empirical study of 23 developing host countries, concluding that FDI weakly influences on the economic expansion rate directly and indirectly, the interaction term of FDI with regime affects the growth rate significantly and what is more, FDI’s interaction with regime contributes to the economic increase extensively through crowding in domestic investment. The regime in host countries imposes the positive effect on economic development mainly by means of two channels: one is crowding in FDI inflows into the host countries and the other one is to promote the increasing in domestic investment strongly. Therefore, good institutes are the critical determinant of the beneficial effects of FDI reaped in host countries. Consequently, developing governments should design the quality institute and make the innovation in regime for obtaining benefit from the technological spillovers of FDI so as to enhance their economic growth persistently.