Is FDI Growth Enhancing: An Exploration from OIC Member Countries

This study examines the impact of FDI inflow on economic growth of the selected countries over the period of 1980-2011. Results, from Generalized Method of Moment (GMM) in Simultaneous Equations Model (SEM), suggest that positive spillover-effect of FDI inflows is conditional on the level of human capital development. Further, we find the evidence that FDI erodes domestic investment and a net crowding-out effect of FDI is documented. The study recommends formulating policies to develop human capital through better education and skill level that would absorb FDI spillovers. Further, these inflows should be directed to sectors where FDI complements domestic investment to ensure that FDI persuades growth.