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Factors Influencing GDP Per Capita Growth: FDI, Trade, Governance, and Aid

This research investigates the key factors affecting GDP per capita (GDPPC) growth, focusing on foreign direct investment (FDI), trade expansion, governance quality, and foreign aid. Utilizing data from the World Bank, the study supports the hypothesis that these elements positively correlate with GDPPC, indicating that countries engaging in higher FDI and trade, along with better governance and targeted aid, achieve greater economic prosperity. The findings suggest essential policy implications for enhancing GDPPC through improved international investment and trade practices.

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Factors Influencing GDP Per Capita Growth: FDI, Trade, Governance, and Aid

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  1. Factors that Affect GDPPC Growth Bahgi B.Gilamichael bg1961a@american.edu American University School of International Service

  2. Research Question & Research hypothesis Research Question/s: • Does foreign direct investment increase GDPPC? • Does increased trade increase GDPPC? • Does better governance increase GDPPC? • Does development aid increase GDPPC? Research hypothesis • Investment, international trade, better governance and aid increase the GDPPC of a country.

  3. Background Info or Lit. Review • Dambisa Moyo • advocates for increased FDI and trade • Robert Baldwin • outward oriented grow faster than in-ward oriented economies • Jeffrey Sachs • advocates for increased development aid • John Shuhe Li • analyses advantages of rule-based governance instead of relation-based

  4. Data • Unit of analysis : country, data from World Bank • Dependent variable (Interval-ratio LOM) • Gross Domestic Product Per Capita Purchasing Power (GDPPC) • In current US dollars • Independent variables (Interval-ratio LOM) • Net Foreign Direct Investment in current US dollars % GDP (FDI) • Trade % of GDP (Trade) • Governance- rule-based structure (Governance) • Foreign Aid Per Capita (Aid) • Reliability of data • a few missing data • GDPPC=domestic work and degradation not account for • Aid= most of the money comes back to its origin, corruption

  5. Descriptive Statistics • GDPPC (Interval ratio) • Mean: 11,493.5 • Median:6,216.268 • Range: 6,8319 • Mode: none • FDI/GDP as %GDP (Interval ratio) • Mean: 6,33% • Median: 2,99% • Trade as %GDP(Interval ratio) • Mean: 94,74396 • Median: 86,49689 • Governance (Interval ratio) • Mean: 2.888158 • Median: 3 • Aid per capita (Interval ratio) • Mean: 89,48069 • Median: 46,2109

  6. Bivariate analysis - IR dependent variable

  7. Regression Analysis, Dependant Variable- log of GDPPC Model 1 Model 2 Model 3 Model 4 lFDI0.256** 0.145 0.143* 0.252** (3.19) (1.53) (2.04) (3.11) lTrade%GDP 0.542* 0.438* 0.645** (2.26) (2.08) (2.98) lAid 0.107 -0.279*** (1.26) (-4.48) lGovernance 0.634 (1.67) lConstant 8.340*** 6.094*** 4.381*** 6.003*** (62.76) (6.02) (4.82) (6.70) -------------------------------------------------------------------------- r2_a0.053 0.078 0.306 0.239 chi2 N163 158 65 114 -------------------------------------------------------------------------- * p<0.05, ** p<0.01, *** p<0.001

  8. Findings & Policy Implications of the research • Findings: Did you accept your research hypothesis? • Yes, FDI, Trade, better governance and aid increase the GDPPC • What are the policy implications of your findings? • More variables explains increase in GDPPC • Other variables including, education rate and level of freedom increase prediction

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