Foreign Direct Investment, Exchange Rate, and Their Roles in Economic Growth of Developing Countries : Empirical Evidence from Kazakhstan

This paper investigates the relationship between foreign direct investment (FDI) inflows, exchange rate, and economic growth of a developing country, and their effects on major economic activities in the nation. This paper examines macroeconomic activity variables of gross domestic product, fixed capital investment, employment ratio, retail trade turnover, industrial production, FDI inflows, and dollar exchange rate as a control variable. The macroeconomic activity statistics of ten calendar years (1997-2006) of Kazakhstan were analyzed by using a multivariate regression model with weighted least squares estimates. The results indicate that FDI has a minimum or statistically insignificant impact on GDP growth of Kazakhstan. The paper argues that a resource-seeking FDI has a minimal effect on improving the economic growth of developing countries. In other words, the resource-seeking FDI might have a minimal effect on achieving economic growth and national competitiveness of host countries, but not as much as manufacturing-based FDI does. Finally, this paper suggest policymakers of Kazakhstan should consider strategic goals of FDI to maximize its benefits into the economy