Impacts of FDI on the GDP of the USA

This study examines the impacts of FDI on the economy of the USA. The hypothesis of the study is that FDI is positively related to the GDP of the USA. The data for the analysis of the study has been collected from the central bureau of economic analysis department of commerce, USA. The correlation between the variables has been done. The study shows that the GDP of the USA and the inflow of FDI in the country have a strong relationship. The increase in the FDI in the country has allowed the country to grow smoothly in the past couple of decades. As per the study of the paper, FDI explains a lot of the changes in the value of GDP and hence they are positively related.

Page 1 of 7
ECONOMICS ASSIGNMENT

Page 2 of 7
Table of contents
Introduction................................................................................................................................3
Literature review........................................................................................................................3
Selection of hypothesis..............................................................................................................3
Findings of the preliminary data analysis..................................................................................3
Explanations...............................................................................................................................6
Summary....................................................................................................................................6
References..................................................................................................................................7

Page 3 of 7
Introduction
FDI is the foreign direct investment which allows the foreign investors to invest in foreign
market through the capital, technological know-how or through both. The main aim of the
increase in the FDI is that it would allow the economy to grow faster than before. Although
its intensity can be realised more in the case of emerging economy, the developed economy
also shows the positive signs of growing upon the effects of FDI. The aim of this paper is to
examine the impacts of FDI in case of the economy of the USA.
Literature review
According to Saidi, Mbarek & Amamri (2018), the FDI works as a growth component of
GDP. The transfer of technological know-how and the capital in other countries allow the
country to produce more in a cost effective way. This transfer not only helps a number of
specific firms associated with the transfer it impacts the economy as a whole. Due to the
perfect information available to the other producers of the domestic market, the FDI reduces
the cost of production for the overall economy. Apart from that, the openness of the
investment market also allows for fewer failures and boosting the economic growth of the
destination country. In addition to that, the FDI inflow in a country also raises the income of
the government as well. Therefore, Infrastructure development is also influenced by the FDI
inflow of a country.
Selection of the hypothesis
The hypothesis for the study is,
H0= FDI is GDP of the USA is positively related to each other
H1= FDI is not related to the GDP of the USA.
Findings of the preliminary data analysis
The data for the analysis of the study has been collected from the central bureau of economic
analysis department of commerce, USA. The GDP data and the FDI data have been collected
and the correlation between the variables has been done. The data for the two variables have
been collected from the year 2000 to 2015.
Year GDP (Billion dollars USD) FDI( Trillion USD)
2000-01-01 10284.775 1.26

Page 4 of 7
2001-01-01 10621.827 1.34
2002-01-01 10977.522 1.33
2003-01-01 11510.674 1.4
2004-01-01 12274.927 1.52
2005-01-01 13093.722 1.63
2006-01-01 13855.892 1.84
2007-01-01 14477.636 1.99
2008-01-01 14718.588 2.05
2009-01-01 14418.740 2.07
2010-01-01 14964.383 2.28
2011-01-01 15517.934 2.43
2012-01-01 16155.255 2.58
2013-01-01 16691.517 2.73
2014-01-01 17427.609 2.95
2015-01-01 18120.714 3.3
Table 1: The data for the GDP and the FDI inflow in the USA
(Source: U.S. Bureau of Economic Analysis (BEA), 2018)
1998-07-24 2001-04-19 2004-01-14 2006-10-10 2009-07-06 2012-04-01 2014-12-27 2017-09-22
0.000
2000.000
4000.000
6000.000
8000.000
10000.000
12000.000
14000.000
16000.000
18000.000
20000.000
GDP
GDP
Figure 1: The growth in the GDP of the USA
(Source: U.S. Bureau of Economic Analysis (BEA), 2018)

Page 5 of 7
1998-07-24 2001-04-19 2004-01-14 2006-10-10 2009-07-06 2012-04-01 2014-12-27 2017-09-22
0
0.5
1
1.5
2
2.5
3
3.5
FDI( Trillion USD)
FDI( Trillion USD)
Figure 2: Increase in the FDI over the years in the USA
(Source: U.S. Bureau of Economic Analysis (BEA), 2018)
GDP FDI( Trillion USD)
GDP 1
FDI( Trillion USD) 0.980305448 1
GDP FDI( Trillion USD)
GDP 0.960610897
FDI( Trillion USD) 0.940916345 1
Table 3: The correlation matrix of the variables
(Source: Developed by the learner)
SUMMARY
OUTPUT
Regression
Statistics
Multiple R 0.98030
5448
R Square 0.96099
8772
Adjusted R
Square
0.95821
297
Standard
Error
498.099
8545
Observation
s
16
ANOVA
df SS MS F Significa

Page 6 of 7
nce F
Regression 1 8558653
0.11
855865
30.11
344.963
0584
2.92562
E-11
Residual 14 3473448
.511
248103.
4651
Total 15 8905997
8.62
Coeffici
ents
Standar
d Error
t Stat P-value Lower
95%
Upper
95%
Lower
95.0%
Upper
95.0%
Intercept 6276.84
6086
437.653
1879
14.3420
5499
9.19933
E-10
5338.17
3358
7215.51
8815
5338.17
3358
7215.51
8815
FDI( Trillion
USD)
3812.91
0524
205.291
1933
18.5731
8116
2.92562
E-11
3372.60
4706
4253.21
6341
3372.60
4706
4253.21
6341
Table 4: The regression analysis of the variables
(Source: developed by the learner)
Explanations
Therefore, as per the correlation matrix, the relationship between the GDP and the FDI in the
USA is very strong. This has been shown by the value of the coefficient which is around
0.98, that is very close to 1, meaning a strong relationship. Apart from that, the regression
analysis has also been done in order to check the nature of the relationship (Duarte, Kedong
& Xuemei, 2017). As per the regression analysis, the coefficient of FDI variable is positive
and hence the null hypothesis of the study can be accepted.
Summary
Therefore, this study shows that the GDP of the USA and the inflow of FDI in the country
have a strong relationship. The increase in the FDI in the country has allowed the country to
grow smoothly in the past couple of decades. As per the study of the paper, FDI explains a lot
of the changes in the value of GDP and hence they are positively related. Thus, it can be
concluded that FDI, in case of the USA, has a positive impact on the overall GDP and the
GDP growth.

Page 7 of 7
References
Duarte, L. D. R. V., Kedong, Y., & Xuemei, L. (2017). The Relationship between FDI,
Economic Growth and Financial Development in Cabo Verde. International Journal
of Economics and Finance, 9(5), 132.
Saidi, K., Mbarek, M. B., & Amamri, M. (2018). Causal dynamics between energy
consumption, ICT, FDI, and economic growth: a case study of 13 MENA countries.
Journal of the Knowledge Economy, 9(1), 228-238.
U.S. Bureau of Economic Analysis (BEA). (2018). Bea.gov. Retrieved 27 April 2018, from
https://www.bea.gov/