Economic Impact of Foreign Direct Investment on Economic Growth: Evidence from Selected Asian Countries (1991–2020)

Abstract

This study empirically examines the economic impact of foreign direct investment (FDI) on economic growth in eleven selected Asian countries over the period 1991–2020. Using balanced panel data and advanced econometric techniques, the study investigates both long-run and short-run relationships while controlling for key macroeconomic factors including public debt, fixed capital formation, inflation, population growth, and major financial crises. Panel unit root tests and cointegration analysis confirm the existence of a stable long-run relationship among the variables. Long-run estimation results indicate that FDI has a positive and statistically significant effect on economic growth in Asian economies. However, short-run dynamics vary across countries, reflecting differences in macroeconomic stability and absorptive capacity. The findings suggest that FDI contributes to growth primarily through capital accumulation, productivity enhancement, and technology spillovers. The study provides policy-relevant insights for Asian countries seeking sustainable economic growth through effective foreign investment strategies.

Keywords: Foreign Direct Investment; Economic Growth; Asian Economies; Panel Data; Cointegration; Development Economics