Although there is considerable evidence on the link between foreign direct
investment (FDI) and economic growth in developing countries, casual patter
ns of the two variables has not been investigated yet with a reliable proce
dure. This article provides an empirical assessment of the issue by using d
ata for 11 economies in East Asia and Latin America. Although FDI is expect
ed to boost host economic growth, it is shown that the extent to which FDI
is growth-enhancing appears to depend on country-specific characteristics.
Particularly, FDI tends to be more likely to promote economic growth when h
ost countries adopt liberalized trade regime, improve education and thereby
human capital conditions, encourage export-oriented FDI, and maintain macr
oeconomic stability.