Foreign direct investment, public expenditure and economic growth: the empirical evidence for the period 1970–2001

The simultaneous impact of public expenditures and foreign direct investment (FDI) on economic growth is studied. To the best of the authors' knowledge, this is the first study that takes into account the interaction between FDI and public expenditures in determining the economic growth rate. Using a sample of 105 developing and developed countries for the period 1970–2001, the main findings are (i) FDI, public capital, and private investment play important roles in promoting economic growth, (ii) public non-capital expenditure has a negative impact on economic growth, and (iii) excessive spending in public capital expenditure can hinder the beneficial effects of FDI.