The Relationships Between Economic Growth, Foreign Capital and Openness

Özet

The previous studies dealing with growth theories have determined foreign trade or FDI asthe main factors that promote economic growth. Yet, the main effect of these two variables onthe growth rate of economy is still ambiguous as the many of those studies have neglected tocapture the joint effect of foreign trade and FDI on growth. The main objective of this studyis therefore to measure the impact of openness on growth by concerning the contributions offoreign investments to the exportations for 23 Asia-Pacific country group. The study employsdynamic panel data method for the period between 2006 and 2014. Our findings show thatforeign trade or FDI has no power to explain economic growth but the interaction term representingthe joint effect of foreign trade and FDI has a significant and positive effect on growth.Furthermore, our empirical results support a positive and significant relationship between growthand tax and foreign exchange rates.