Foreign Direct Investment and Economic Growth: A Cross-Country Exploration in Asia

The existing macro literature on Foreign Direct Investment-Growth nexus has identified the potential gains of FDI to recipient countries only if they attain threshold level of absorptive capacities. The present study has made an effort in this direction to investigate whether FDI affects economic growth based on a panel data for 27 Asian economies over the period 1975–2010. This paper applies panel cointegration technique and the findings strongly suggest that though FDI is growth enhancing in Asia, yet the extent of its impact depends on the threshold levels of absorptive capacities measured by the levels of human capital and infrastructure..