The Impact of Foreign Direct Investment on Economic Growth in Iraq

Abstract

Foreign direct investment is a tool to finance economic growth as it allows capital injection, job creation, and technology transfer. The objective of this paper is to investigate the effects of foreign direct investment on economic growth in Iraq during the period of 1997-2021 using the Generalized Method of Moments (GMM) regression method. This research provides an update on the influence of FDI on economic growth using both linear and non-linear relationships.

Our investigation has yielded evidence of co-integration relationships with the presence of structural breaks, even though correlations between the different variables in the model remain low or medium-level. We conclude that the relationship between economic growth and foreign investment is nonlinear and hump-shaped. Our results suggest adopting more incentives for FDI in Iraq and the implementation of renewable energy sources.