Foreign Direct Investment and Economic Growth in Algeria: An Application of Auto -Regressive Distributed LAG (ARDL) Bounds Testing Approach

Abstract

Recent empirical literature suggests that foreign direct investment (FDI) have positive impact on economic growth through the process of technological diffusion. This paper proposes a new approach to testing for the existence of a relationship between foreign direct investment (FDI) and economic growth in Algeria for the analysis of long-run relations over the period of 1980-2014. The empirical analysis in this study is based on the bounds testing approach of co-integration, is introduced originally by (Pesaran & Shin, 1999) and further extended by (Pesaran & al, 2001), In order to verify the relationship between Foreign Direct Investment and economic growth in Algeria. The results suggest that FDI have a positive impact on economic growth in the long-run. The results further suggest FDI can be deemed to be catalysts for economic growth in Algeria an increase in one unite in FDI leads to increase by 5% in GDP.