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THE IMPACT OF CAPITAL FLOWS ON ECONOMIC GROWTH OF DEVELOPED COUNTRIES
Abstract
The purpose of the present research is to analyse the existing relationship between foreign direct investments and economic growth in the group of developed countries throughout a rather long period of time, in which most countries of the world, and particularly developed countries have been rather highly integrated in the global financial network. In order to meet this objective, we use the econometric analysis of the data provided by the UNCTAD database, for the period 1970-2013, focusing on the two relevant indicators: foreign direct investment flows (FDI) and the Gross Domestic Product per capita (GDP per capita), for the group of developed countries. In order to measure the correlation and interdependency between the two variables, we use the dedicated software for statistical analyse. The conducted analysis reveal that, in developed countries, the FDI and GDP indexes evolve rather differently throughout the above mentioned period, and the relationship between these variable could be approximated by a power function. The identified correlation reveals the fact that, in the case of developed countries, a higher level of economic development will trigger inward foreign direct investment flows to other recipient economies, thus acting more like investment transferred to other economies instead of recipients for inward foreign investments. After the appearance of the financial crisis in 2007-2008, foreign investments have become the most important for the global economic activity, in light of the depression that has affected the world's countries during the past few years. The findings of the present research contribute to a better grasp of the existing relationship between the foreign investment flows and the level of economic development and this relationship can be seen as rather helpful when adopting the economic policy measures on a global scale.
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