The Impact of GDP Growth on Foreign Direct Investment: An Analytical Study

Abstract

This study explores the relationship between Gross Domestic Product (GDP) growth and Foreign Direct Investment (FDI) inflows in developing economies. As FDI plays a pivotal role in driving economic progress, understanding its dynamics relative to GDP growth provides valuable insights for policymakers and investors. The manufacturing sector, with its need for cost efficiency, production scale, and infrastructure, attracts FDI when GDP growth fosters these elements. Conversely, the services sector, which relies on skilled labour and technology, benefits from rising GDP, fuelling local demand for services. This research uses historical data, descriptive statistics, and regression analyses to evaluate GDP's impact on FDI from 1970 to 2023. The findings reveal a positive correlation between GDP growth and FDI inflows, with distinct sectoral variations that highlight specific economic demands in manufacturing versus services. The study’s conclusions aim to guide targeted policies for fostering sectoral FDI, supporting balanced and sustainable economic development.