DO FOREIGN DIRECT INVESTMENT AND PORTFOLIO INVESTMENT STIMULATE ECONOMIC GROWTH? EVIDENCE FROM DEVELOPING COUNTRIES

Purpose - The purpose of this paper is to assess the effects of foreign direct investment and portfolio investment on economic growth in selected developing countries. The effect of 2008 global financial crisis on economic growth in developing countries and persistence of economic growth are also investigated. Methodology - The effects of foreign direct investment and portfolio investment on economic growth in selected developing countries are evaluated by static and dynamic panel data analyses. Findings - According to the results of static and dynamic panel data analyses, foreign direct investment is positively associated with economic growth. The effect of portfolio investment on economic growth is statistically insignificant. The other variables that affect economic growth are foreign exchange rate and unemployment. Economic growth is persistent according to dynamic models. Conclusion - Foreign direct investment stimulates economic growth in developing countries. This result supports the incentive policies of developing countries to increase foreign direct investment. Portfolio investment is not associated with economic growth. In addition, 2008 global financial crisis has negative effect on economic growth in developing countries