Economic Freedom, FDI and Economic growth

Introduction

The relationship between economic freedom, foreign direct investment (FDI), and economic growth has been a focal point of economic research. This synthesis aims to consolidate findings from multiple studies to understand how these variables interact and influence each other.

Key Insights

Economic Freedom Enhances FDI Inflows:
- Higher levels of economic freedom attract more FDI inflows, with sub-components like rule of law, market openness, and a less-restrictive regulatory environment being particularly influential .
Economic Freedom as a Complement to FDI for Growth:
- The positive impact of FDI on economic growth is significantly enhanced in countries with higher economic freedom. This suggests that economic freedom acts as a crucial complement to FDI in promoting growth .
FDI and Economic Growth Relationship:
- FDI alone does not directly lead to economic growth; its positive effects are contingent on the level of economic freedom in the host country. Countries with greater economic freedom benefit more from FDI .
Variability in Causality and Impact:
- The relationship between economic freedom, FDI, and economic growth varies by country and specific economic freedom indicators. This indicates that the impact of these variables is context-specific and influenced by local economic conditions .
Role of Financial Markets and Human Capital:
- Well-developed financial markets and high-quality human capital further enhance the positive effects of FDI on economic growth. These factors, along with economic freedom, create a conducive environment for FDI to contribute to growth .

Conclusion

The synthesis of research indicates that economic freedom plays a pivotal role in attracting FDI and amplifying its positive effects on economic growth. While FDI alone does not guarantee growth, its benefits are significantly realized in environments with high economic freedom, robust financial markets, and quality human capital. The relationship between these variables is complex and varies across different economic contexts, highlighting the need for tailored policy approaches to maximize the benefits of FDI.

Economic Freedom, FDI and Economic growth

Summary

Introduction

Key Insights

Conclusion

Sources and full results

Foreign direct investment, economic freedom and economic growth: International evidence

FDI's effect on economic growth depends on the level of economic freedom in host countries, with greater economic freedom leading to greater benefits from the presence of multinational corporations.

The effects of economic freedom on FDI inflows: an empirical analysis

Economic freedom positively impacts FDI inflows, with rule of law, market openness, and less-restrictive regulatory environment being key factors, and policies tailored to host country economic and geo-economic characteristics can boost FDI.

Economic freedom, foreign direct investment, and economic growth: The role of sub-components of freedom

The direction of causality between economic freedom, foreign direct investment, and economic growth is country and indicator specific, with weak evidence for overall economic freedom index causal links.

On the relationship between economic freedom and economic growth

More economic freedom fosters economic growth, as evidenced by similar rankings across various indicators, but some elements in these measures are questionable.

Does Economic Freedom Influence the FDI–Growth Nexus in ASEAN Economies?

Higher economic freedom and improved human capital and financial institutions positively impact the FDI-economic growth nexus in ASEAN countries.

Does economic freedom enhance the impact of foreign direct investment on economic growth in north African countries? A panel data analysis

Economic freedom enhances the impact of foreign direct investment on economic growth in North African countries, with greater economic freedom leading to greater benefits from the presence of multinational corporations.

Does FDI Drive Economic Growth? Evidence from City Data in China

FDI in Chinese cities has an inverse U shape relationship with GDP growth, due to tax distortion and crowd-out effects, especially in cities with budget deficits or heavy reliance on local corporate tax.

Foreign direct investment and economic growth in Sub-Saharan Africa: the complementary role of economic freedom and financial market fragility

Economic freedom and a well-developed financial market complement foreign direct investment in promoting economic growth in Sub-Saharan Africa.

Foreign Direct Investment, Economic Freedom and Growth: New Evidence from Latin-America

Economic freedom in Latin-American countries positively influences Foreign Direct Investment, leading to economic growth and technological diffusion.

The Role of Economic Freedom in the Relationship between Foreign Direct Investment and Economic Growth: Evidence from Former Socialist Countries

Higher economic freedom in former socialist countries attracts more foreign direct investment, leading to positive economic growth and increased income per capita.

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