Impact of Fdi and Economic Growth

Foreign Direct Investment and Economic Growth in South Korea and Policy Lessons for Nepal

(A Master Degree Dissertation)

Submitted by:
Raj Kumar Rai
MSc. International Finance
Student Ref No: M00235713

Submitted to:
Middlesex University Business School, London
2008/09

September 25, 2009
London, United Kingdom

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Abstract

Foreign direct investment (FDI) is taken as one of the key factor of rapid economic growth and development. FDI, it is believed to stimulate domestic investment, human capital, and transfers technology. It is associated qualities which causes the faster economic development in the host countries. South Korea, for instance had one of the of the poorest economies during 1960s, but yet achieved double digit economic growth with substantial amount of FDI inflows and become one of the most advanced economies in the world less than in a half century and a member of OECD country. This paper evaluates the role of FDI in South Korea’s economic growth employing macro economic times series data from 1980-2005.The other variables such as foreign direct investment, human capital, export, employment and domestic investment. This study uses the endogenous growth model to explore the role of FDI in economic growth. The role of FDI in economic growth is not statistically significant; however, the interaction between FDI and human capita, export and domestic capital is positive. This study supports the findings of Kim and Hwang (2000) in the case of Korean economic study of FDI and economic growth.

Key word:   Foreign Direct Investment, Economic growth, South Korea

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Acknowledgements

I am heartily thankful to my supervisor, Mr. Leslie Taylor, whose guidance and supervision from the beginning to the concluding level enabled me to develop an understanding of the project. I would like to express my gratitude to Dr. Michela Vecchi for her support my queries in this dissertation writing.

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