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


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


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