Abstract
This study explores the impacts of foreign direct investment (FDI) and foreign portfolio investment (FPI) on long-term economic growth by using 216 cross-country data from 1960 to 2016. We use GMM model to improve the endogenous issues between economic growth and investment, and consider control variables, including GDP per capita, real interest rate, inflation rate, unemployment rate, broad money supply (M2) growth rate, exchange rate, and energy consumption. In addition, we divide these countries into four categories: high-income countries, upper middle-income countries, lower middle-income countries, and low-income countries to evaluate the different influence of foreign direct investment (FDI) and foreign portfolio investment (FPI) on long-term economic growth. The empirical results show that among high-income and upper middle-income countries, FDI outflows have significant positive effects on economic growth, while among high-income, upper middle-income and lower middle-income countries, FDI inwards have significant positive impacts on the economy. On the other hand, FPI inwards and FPI outflows have significant positive effects on the economy in high-income countries, and only FPI outflows have significant impacts on domestic economic growth in upper middle-income countries.