Foreign Direct Investment and Economic Growth: Evidence from Iran and GCC


1 Department of Economics, University of Kurdistan, Kurdistan, Iran

2 Department of Economics, Razi University, Kermanshah, Iran




DI can create employment and reduce poverty, increase the host country’s export capacity causing the developing country to increase its foreign exchange earnings. The aim of this study is to investigate whether FDI affect economic growth in GCC countries over the period 1980-2014 using ARDL approaches. The empirical results show that the FDI is one of the major drivers of economic growth in Iran and GCC countries. The result of bound test indicates that there is a long-run steady-state relationship between FDI and GDP in Iran and for individual country of GCC (Gulf Cooperation Council). Also results of Granger-causality test imply that a bidirectional causalities from FDI to real GDP growth in Qatar, Saudi Arabia and UAE; unidirectional causalities from FDI to real GDP growth rate in Iran and Bahrain and no causality between FDI and real GDP growth rate in Kuwait and Oman.



Ahmadi, R., & Ghanbarzadeh, M. (2011). Openness, Economic Growth and FDI: Evidence from Iran. Middle East Journal of Scientific Research, 10(2), 168-173.

Ahlin, C., & Pang, J. (2008). Are Financial Development and Corruption Control Substitutes in Promoting Growth? Journal of Development Economics, 86(2), 414-433.

Ahn, S. C., & Schmidt, P. (1995). Efficient Estimation of Models for Dynamic Panel Data. Journal of Econometrics, 68, 5-27.  

Al-Iriani, M., & Al Shamsi, F. (2007). FDI and Economic Growth in the GCC Countries. Retrieved from

Alfaro, L., Chanda, A., Kalemli-Ozcan, S., & Sayek, S. (2004). FDI and Economic Growth: the Role of Local Financial Markets. Journal of International Economics, 64, 89-112.  

Arellano, M., & Bover, O. (1995). Another Look at the Instrumental Variables Estimation of Error Component Models. Journal of Econometrics, 68, 29-51.

Arellano, M., & Bond, S. (1991). Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations. Review of Economic Studies, 58, 277-297.

Baltagi, B. H. (2005). Econometric Analysis of Panel Data.
New York: John Wiley.

Barro, R. J., & Sala-i-Martin, X. (1992). Convergence. Journal of Political Economics, 100(2), 223-251.



Borensztein, E., Gregorio, D. J., & Lee, J. W. (1998). How Does Foreign Direct Investment Affect Economic Growth? Journal of International Economics, 45, 115-135.  

Campose, F. N., & Karanasos, G. M. (2008) Growth, Volatility and Political Instability: Non-Linear Time Series Evidence for Argentina, 1986-2000. Economic Letters, 100, 135-137.

Campos, N. F., & Nugent, J. B. (1999). Development Performance and the Institutions of Governance: Evidence from East Asia and Latin America. World Development, 27(3), 439-452.

Carkovic, M., & Levine, R. (2002). Does Foreign Direct Investment Accelerate Economic Growth? University of Minnesota Department of Finance Working Paper, Retrieved from

Choong, C. K., & Lam, S. Y. (2010). The Determinants of Foreign Direct Investment in Malaysia. Global Economic Review, 39, 175-195.

De Mello, L. R. (1999). Foreign Direct Investment-led Growth: Evidence from Time Series and Panel Data. Oxford Economic Papers, 51(1), 133-151.

Hermes, N., & Lensink, R. (2003). Foreign Direct Investment, Financial Development and Investment and Economic Growth. International Business Research, 3(1), 52-56.

Holtz, E. D. (1988). Testing for Individual Effects in Autoregressive Models. Journal of Econometrics, 39, 297-307.

Hausmann, R., & Rodrik, D. (2004). Economic Development as Self-Discovery. Journal of Development Economics, 72(2), 603-633.



Hausmann, R., Lant, P., & Dani, R. (2004). Growth Accelerations. NBER Working Paper, 10566, Retrieved from

Hsiao, C. (2003). Analysis of Panel Data. Cambridge: Cambridge University Press.

Kinuthia, K. B. & Murshed, M. S. (2015). FDI Determinants: Kenya and Malaysia Compared. Journal of Policy Modeling, 37, 388-400.

Kirmanoglu, H. (2003). Political Freedom and Economic Well-Being: A Causality Analysis. International Conference on Policy Modelling, Retrieved from

Lane, J. E. (2010). Good Governance: The Two Meanings of Rule of Law. International Journal of Politics and Good Governance, 1(1), 1-22.

Lee, H. H. & Tan, B. H. (2006). Technology Transfer, FDI and Economic Growth in the ASEAN Region. Journal of the Asia Pacific Economy, 11(4), 394-410.

Li, H., Xu, L. C., & Zou, H. (2000). Corruption, Income Distribution and Growth. Economics and Politics, 12(2), 155-185.

Omri, A., Shahbaz, M., Chaibi, A., & Rault, C. (2015). A Panel Analysis of the Effects of Oil Consumption, International Tourism, Environmental Quality and Political Instability on Economic Growth in MENA Region. Working Paper, Business School, Retrieved from

Rappaport, J. (2000). How Does Openness to Capital Flows Affect Growth? Research Working Paper, RWP 00-11, Retrieved from

Rotberg, R. I. (2004). Strengthening Governance: Ranking Countries Would Help. The Washington Quarterly, 28, 71-81. 

Schneider, H. (1999). Participatory Governance: The Missing Link for Poverty Reduction. Journal of International Development, 11(4), 521-534.

Sen, A. (1999). Development as Freedom. New York: Alfred Knopf Publisher.  

Thangavelu, M. S., & Narjoko, D. (2014). Human Capital, FTAs and Foreign Direct Investment Flows Into. Journal of Asian Economics, 35, 66-76.

UNCTD. (2015). FDI/TNC Database. Retrieved from

Vu, B. T., & Noy, I. (2009). Sectorial Analysis of Foreign Direct Investment and Growth in the Developed Countries. Journal of International Financial Markets, Institutions & Money, 19, 402-413.   

World Development Indicator. (2015). Retrieved from

Zhang, K. H. (2001). Does Foreign Direct Investment Promote Economic Growth: Evidence from East Asia and Latin America. Contemporary Economic Policy, 19, 175-185.  

Zureiqat, H. M. (2005). Political Instability and Economic Performance: A Panel Data Analysis. Award Winning Economics Papers, Retrieved from