Foreign direct investment in Latin America: effects on growth and development, 1996-2017

Abstract

Latin America receives large flows of foreign direct investment each year, as do other developing countries, but it has not generated the expected macroeconomic effects. This reality generates a broad debate on the effectiveness of foreign direct investment in Latin America, as Growth and development conditions have stagnated in the region. The objective of this chapter is to examine the effectiveness of foreign direct investment on economic Growth and development in Latin America during the period 1996-2017. The methodology used is panel data with long N and T to measure the relationship between capital movements and economic Growth and its relationship with human development in Latin America. To this end, two econometric models are presented, one model to determine the relationship of foreign direct investment with economic Growth, and another model to determine the relationship of foreign direct investment with development, both developed under the same technical criteria. The results, under the premise that Growth is not the same as development, show that foreign direct investment contributes positively to economic Growth as measured by variations in GDP. Simultaneously, money flows sent abroad captured from the balance of net income in the balance of payments sent abroad negatively affect human development.