The Effects of Inward and Outward Foreign Direct Investments on Economic Growth: Evidence from the G-7 and Selected Emerging Market Economies (1994-2015)

Abstract

In this study, the long termed effects of foreign direct (capital) investments inflows and outflows on the economic growth of the economies of developed G-7 countries where the capital mobility is intense and selected emerging market economies (Brazil, China, India, Mexico, Russia, South Africa and Turkey (EME-7)) are empirically analyzed for the period of 1994-2015 within the scope of the new generation panel data methodology. From this aspect, it is also aimed to economically analyze whether the foreign direct investments inflows and outflows in countries of G-7 and EME-7 have an effect on the economic growth as is seen in the theoretical framework by being considered the capital exporter/importer positions of these countries. Determined in consequence of the study that foreign direct investments inflows/outflows in the countries of G-7 have a positive and statistically significant effect on economic growth in the long term. Also determined that the foreign direct investments inflows have a positive and statistically significant effect on economic growth in countries of EME-7; while the foreign direct investments outflows have not the same effect on the economic growth. These results which are consonant with the theoretical and empirical literature show that just both foreign direct investments inflows and outflows have a significant role in economic growth on G-7 countries; just foreign direct investments inflows have an important role in economic growth on EME-7 countries at the same time.