E22 - Investment; Capital; Intangible Capital; CapacityReturn

This study assesses the impact of foreign direct investment (FDI) inflows on economic growth and domestic investment in a panel of Economic Co-operation and Development (OECD) countries during the period of 1990–2017 by utilizing the method of fixed-effects and system generalized method of moments (GMM). The findings show that FDI inflows are positively and significantly associated with the economic growth of the host economy. When considering the origin of FDI, we find that FDI from developed countries contributes to the growth rate in the receiving economy, while FDI from developing countries shows no significant effect. Importantly, FDI does not appear to crowd in or out domestic investment. Only FDI from developed countries is associated with crowding in of domestic investment.

The study analyses the economics intuition that the domestic savings may determine the investments in a country. The assumption is tested on domestic savings between 1982 and 2016 in Southeast Asia economies in a panel regression framework. The hypothesis is that domestic savings stimulate economic growth through investment financing and, thus, the high savings rate observed in Southeast Asian countries can contribute to the outstanding GDP growth in the region. The tests sort out the significant determinants of investments. The analysis successfully indicates the significance of domestic savings beside other variables, and confirms the hypothesis, namely, the domestic savings affect investments and indirectly the economic growth, while FDI does not prove to be significant.