The relationship between foreign direct investment and socio-economic development in Latin America and the Caribbean

Abstract

This study examines the effect of FDI in Latin America and the Caribbean from 1995 to 2014. Furthermore, the study investigates the relationship between FDI and the social development, compared to the relationship between FDI and GDP per capita. This is investigated through a cross-country analysis with panel data. We provide evidence by using statistics from the World Bank (WGI), Transparency International (CPI) and United Nation Conference on trade and development (UNCTAD). The result suggests that an increase in FDI to Latin America and the Caribbean has a positive effect on the economic growth. Although, no evidence could be found that the social development have improved, according to the results when observing life expectancy and GINI Coefficient Index. Previously literature does not provide a unilateral picture of the effect FDI has on economic growth and social development. There are numerous perspectives in the issue, although there is a consensus in the literature advocating that a certain natural level of development in the country is necessary to make it possible to exploit the inflow of FDI.