Foreign and Domestic Investment in Emerging Economies: Growth Resilience from a 2010–2024 Panel

Abstract

This paper explores whether foreign direct investment (FDI) helps economies remain resilient amid recent challenges such as the pandemic, inflation, shifting supply chains, and global tensions. It uses annual data from 31 emerging countries between 2010 and 2024, focusing on real GDP growth as the main outcome. The key variable is FDI inflows from the previous year as a share of GDP, along with factors like domestic investment, trade openness, inflation, and fixed country and year effects to account for broader trends. Resilience is measured by how FDI interacted with the 2020 shock and the period after 2021. The analysis uses 399 country-year observations from 29 countries. Results show that lagged FDI has no clear or significant effect on growth during shocks. In contrast, higher domestic investment and trade openness are clearly linked to stronger growth, while higher inflation is linked to weaker growth. The findings suggest that simply attracting more FDI does not automatically boost an economy’s short-run resilience. Instead, the benefits of FDI depend on strong domestic investment, stable macroeconomic conditions, good market access, and the ability to use foreign capital effectively. The study adds updated, transparent evidence to ongoing debates, emphasizing that policy should focus not just on the quantity of FDI, but on improving investment quality, supporting domestic capital, maintaining stability, and building diverse economic relationships.