The Relationship between Gross Domestic Product and
Foreign Direct Investment: The Case of Cambodia
Lim GuechHeang
Pahlaj Moolio
Abstract
Foreign Direct
Investment (FDI) is widely believed to have positive
effects on economic growth; yet for Cambodia, over 19
years (1993-2011) of attracting FDI inflows, the growth
rate of Gross Domestic Product (GDP) has averaged at 7%,
which demand a modest attempt to study their
relationship whether FDI drives growth of Cambodia’s
economic output. This paper aims to examine the
relationship between foreign direct investment and gross
domestic product of Cambodia in long run over the period
of 1993-2011 by using simple regression analysis,
Augmented Dickey-Fuller test, Durbin-Watson test,
Breusch-Godfrey Serial Correlation LM test, Breusch-Pagan-Godfrey
test, and Jarque-Bera test. The result from regression
found that there is a positive relationship between FDI
and GDP in the long run in Cambodia, which is also
supported by qualitative studies that is based on the
collection of existing studies from recognized domestic
and international institutions, people in senior
positions, and researchers. All of the qualitative
studies presented in this paper claim that FDI
positively affects GDP, and most significantly, to the
employment opportunities generated for local people,
which in the long run help unemployment and poverty
reduction in Cambodia. However, GDP growth rate has
averaged at 7% over 19 years although the influx of FDI
inflows dramatic increase probably because of the
internal factors of Cambodia, particularly the limited
absorptive capability of the advanced technology.
JEL.Classification:
E220; F23; O3; F210; E27
Keywords: FDI, GDP, Foreign Investment, Domestic Investment, Growth
