Foreign Direct Investment Inflows and Economic Growth: When Would Tiger Slay Lion?

Abstract

This study is motivated by the IMF`s projection about the GDP of the leading economy among the Asian Tigers overtaking the century dominating lion`s comes 2030. Meanwhile, past empirical studies have shown divergent views on principal determinants of FDI inflows in the USA and Chinese economies. However, in achieving the objective of this study, the authors employed the OLS modeling to investigate the link between FDI, GDP, GDP per capita growth and growth rate of economy of the US and China from 2002 to 2017. The findings from this study show that the principal determinant of FDI inflows in the USA is GDP. On the other hand, GDP per capita growth is the principal determinant of FDI inflows in China. Therefore, the study concludes as projected by the International Monetary Fund that the China`s GDP will overtake the America`s comes 2030. There is a direct link between FDI inflows and GDP, therefore, from 2030 the Chinese economy will be the first destination of FDI inflows in the world. However, it could be advocated as a recommendation that: the policy makers in the United States of America should as a matter of urgency embark on policy measures that will catalyze exponential expansion of the country`s market size. If the market size of the US could be expanded exponentially, it will extend the China`s FDI inflows and GDP convergence beyond 2030.   Similarly, all hands must be on deck by the policy makers in China to embark on policy measures that will sustain China`s GDP per capita growth in the economy. As long as this variable grows on a sustainable basis, China will be an indomitable gladiator in the arena of global FDI recipient in the nearest future.