The Impact of FDI Inflows on Economic Growth: Evidence from Latin American Countries

Abstract

This study is to investigate the impacts of FDI inflows on the economic growth of Latin American countries over the period 1995 – 2013 using a panel data model. While controlling the host countries’ peculiar characteristics such as; (Domestic investment percent of GDP, openness of trade percent of GDP, inflation, human capital and Government Expenditure percent of GDP), the current economic growth in the selected Latin American countries is positively affected by FDI inflows. Accordingly, while a negative relationship was revealed between human capitals and economic growth in the sample countries, a significant relationship between domestic investment and economic growth was designated which suggests that FDI has no crowding out effect on current domestic investment. This study adds to the knowledge build up on FDI-led growth by exploring the seven largest recipients of FDI inflows among Latin American countries for the first time and the role human capital endowment played for FDI attraction during the specified period.