Investigating the Impact of Predicted Fall of Foreign Direct Investment on Gross Domestic Product in Low Income Countries

Fall of foreign direct investment inflows (FDI) are predicted to in 2020. The consequences of that prediction on economies of low, low middle, and upp-middle income countries are still unknown. The general objective of this paper is investigating the consequences of the predicted fall of FDI on economies as measured by Gross domestic product (GDP) of LMUMI countries. Specifically, the study analyses to what extent FDI was related to GDP, household consumption (HHC), export (EXP), import (IMP) and gross capital formation (GCF). It also analyses the impact of FDI on GDP, HHC, EXP, IMP and GCF. The paper finally examines direct and indirect effect of FDI on GDP via GDP, HHC, EXP, IMP and GCF. Spearman correlation, robust regression, bootstrap procedure, and robust mediation were used. The findings show a strong and positive correlation, a positive and statistically significant impact of FDI on other variables, statistically significant indirect effect of FDI on GDP via mediator variables (HHC, EXP, IMP, and GCF). The predicted fall of FDI will have a negative impact on all variables analyzed. Governments in low, low middle, and upper middle-income countries should prepare a clear plan to reduce the impact of the reduction of household income, export, import and gross capital formation. The ultimate consequence will be increasing in the unemployment rate, decreasing in gross domestic per capita, increasing in poverty, and decline in country competitiveness, etc. These states must prepare an economic recovery plan to soften the negative effects caused by this vicious circle of harmful consequences