The Role of Foreign Direct Investment in Economic Development: JEL Classification: F21, O11, C23, O43, F23

Marya Ulva; Arman Maulana; Delfi Refilda

doi:10.37899/mjde.v3i3.418

Authors

Marya Ulva Department of Development Economics, Faculty of Economics and Business, Universitas Muhammadiyah Makassar, Makassar, South Sulawesi 90221, Indonesia
Arman Maulana Department of Development Economics, Faculty of Economics and Business, Universitas Muhammadiyah Makassar, Makassar, South Sulawesi 90221, Indonesia
Delfi Refilda Department of Development Economics, Faculty of Economics and Business, Universitas Muhammadiyah Makassar, Makassar, South Sulawesi 90221, Indonesia

DOI:

https://doi.org/10.37899/mjde.v3i3.418

Keywords:

Economic Development, Foreign Direct Investment, Government Effectiveness, Human Capital, Institutional Quality, Panel Data Analysis

Abstract

Foreign Direct Investment (FDI) has become an essential instrument for accelerating economic development by facilitating capital accumulation, technological transfer, productivity improvement, and international economic integration. This study aims to examine the role of FDI in promoting economic development across developing and emerging economies while considering the influence of institutional quality and macroeconomic factors. A quantitative explanatory approach was employed using panel data covering 35 developing and emerging countries during the 2015–2025 period. The analysis evaluated the relationship between FDI and multidimensional economic development through a Fixed Effects panel regression model with relevant macroeconomic control variables. The findings indicate that FDI exerts a positive and significant influence on economic development, while human capital and government effectiveness emerge as the strongest determinants of sustainable economic performance. Trade openness, industrial value added, and gross capital formation also contribute positively, whereas inflation negatively affects economic development. The findings provide theoretical evidence supporting multidimensional development perspectives and offer practical implications for governments seeking to formulate investment policies that simultaneously strengthen institutional capacity, human capital, and macroeconomic stability to achieve sustainable economic development.

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