Foreign direct investment (FDI) has increased rapidly in developing countries since the 1990s. Many studies
found that there is a significant relationship between FDI and economic growth. This thesis seeks to analyze the
relationship between FDI and economic growth in developing countries and explore policy implications for the
South Asian countries and Nepal. The study conducts panel data analyses based on a panel data set of 63 developing
countries in Asia, Africa, and Latin America for the period from 1990-2015. The results of the panel data
analyses, obtained by the fixed effects, random effects, difference generalized method of moment, DGMM and
system generalized method of moment, SGMM estimators, show that there is a significant positive effect of FDI
on economic growth. It is also found that the FDI-economic growth relationship depends on domestic macroeconomic
and financial market conditions, domestic investment climate and infrastructure in host countries.


Economic Growth, Foreign Direct Investment, Dynamic panel data, Developing countries, Nepal.

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