Foreign Direct Investment and Growth in EP and IS Countries

This paper examines, within a new growth theory framework, the role that foreign direct investment plays in the growth process in the context of developing countries characterized by differing trade policy regimes. The paper tests, using cross-section data relating to a sample of forty-six developing countries, the hypothesis advanced by Jagdish Bhagwati, according to which the beneficial effect of foreign direct investment, in terms of enhanced economic growth, is stronger in those countries that pursue all outwardly oriented trade policy than it is in those countries adopting an inwardly oriented policy. Copyright 1996 by Royal Economic Society.

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