Modeling of foreign direct investment impact on economic growth in a free market

Abstract

The complexity and ambiguity of the contribution of foreign direct investment (FDI) to economic growth necessitates the development of recommendations for the analysis and management of foreign investment flows to maximize their positive impact on the economy and prevent negative consequences. In this regard, the aim of the study is to propose an economic and mathematical modeling of the foreign direct investment impact on economic growth and their interaction with domestic direct investment. The article proposes a classification of factors that determine the inflow of foreign direct investment to developed countries and developing countries. By introducing the external effect of foreign direct investment (capital repatriation), the authors modified the model with foreign direct investment in the form of accumulated foreign capital reserves. An analytical expression is obtained to relate the rate of economic growth to the amount of repatriation depending on the effects of supplementing and substituting foreign direct investment for foreign direct investment.