Graduate School of International Studies Ajou University
Many studies have been done to investigate the impact of FDI on the economic growth. Foreign direct investment is kind of injection of new ideas, the regular maintaining of technology improvement, management technique and quality control, which contribute to productivity improvement and economic growth. However, in a recent survey of the literature, there is such weak evidence that FDI generates positive impacts to the host countries. Actually, the growth impact of FDI varies to one country to another. Meanwhile, Cambodia has tried and attracted FDI for many years since 1990s and offered many significant incentives to foreign investors.
The main purpose of this paper is to examine the relationship between FDI and economic growth using time series data from 1991 to 2011. Specifically, the study is going to test whether FDI has an impact on growth both short-term and/or long term on economic growth and to checks the feedback effect from GDP growth to FDI inflow based on single equation error correction model (ECM). According to empirical results, FDI has impact on GDP growth in both short run and long run, while GDP growth does have effect on FDI inflow only in the short run. In addition, the domestic investment and the openness of trade positively have effect on GDP growth, while the increase of labor force growth rate negatively influences GDP growth. Government expenditure expectedly show negative sign toward to GDP growth but the coefficient is not significant. In order to boost economic growth, Cambodia should attract more FDI inflow, promote domestic investment and promote export.