Dynamic relationship among foreign direct investments, human capital, economic freedom and economic growth: Evidence from panel cointegration and panel causality analysis

Abstract

This study investigates the dynamic relationship between foreign direct investment (FDI), human capital, economic freedom and economic growth for the period of 2000-2013 covering 39 countries. In this context, we utilized panel cointegration, panel fully modified ordinary least squares (FMOLS), panel dynamic panel ordinary least squares (FMOLS), and panel vector error correction model (VECM) based Granger causality analysis methods. In this study: i) variables are cointegrated in the long term; ii) according to FMOLS results, FDI, human capital and economic freedom have a positive impact on economic growth; iii) according to panel DOLS results, human capital and economic freedom have a positive impact on economic growth, and finally; iv) panel VEC results supports the relationship between variables both short and long term. In the last chapter, we evaluated the findings obtained from the analysis and suggested some policy recommendations.

Keywords

• foreign direct capital investments
• human capital
• economic freedom
• economic growth