The Relationships Between Economic Growth, Foreign Capital and Openness

Authors : Burçak POLAT

Pages : 11-23

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Publication Date : 2018-11-15

Article Type : Research Paper

Abstract :The previous studies dealing with growth theories have determined foreign trade or FDI as the main factors that promote economic growth. Yet, the main effect of these two variables on the growth rate of economy is still ambiguous as the many of those studies have neglected to capture the joint effect of foreign trade and FDI on growth. The main objective of this study is therefore to measure the impact of openness on growth by concerning the contributions of foreign investments to the exportations for 23 Asia-Pacific country group. The study employs dynamic panel data method for the period between 2006 and 2014. Our findings show that foreign trade or FDI has no power to explain economic growth but the interaction term representing the 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 growth and tax and foreign exchange rates.
Keywords : Equity Capital, Foreign direct Investment, Growth, Openness