Foreign direct investment and growth in Latin America

In this paper a study on the impact of Foreign Direct Investment on Economic Growth in 14 Latin American countries is presented. With this purpose the relationship of Foreign Direct Investment per capita with Gross Domestic Production per capita variation (as a proxy for Economic Growth) and Private Capital per capita variation during the period 1996-2003 were analyzed. A model with two simultaneous equations that are solved using fixed-effects panel for both analysis of countries and the study of the time effect. The results allows concluding that for those countries studied the Foreign Direct Investment boosts both the Private Capital per capita accumulation and the Income per capita growth. The Institutional Quality, mainly that related to private property rights protection and individual freedom, are determining factors for Growth. It was finally found that Public Investment also boosts Growth and the countries considered in the analysis show conditional convergence, which is consistent with the mainstream literature.