FDI and Economic Growth: Causality for the EU and ASEAN

Moudatsou, Argiro; Kyrkilis, Dimitrios

doi:10.11130/jei.2011.26.3.554

Cited by 38 publications

(18 citation statements)

References 48 publications

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“…Long-run causality, on the other hand, is tested through the lagged co-integrating vectors ‫ܶܥܧ‬ ଵ,௧ିଵ and ‫ܶܥܧ‬ ଶ,௧ିଵ (Ghali, 1998;Zhang, 2001;Fowowe, 2011;and Moudatsou & Kyrkilis, 2011 According to Granger (1986Granger ( , 1988b and Ghali (1998), if two variables are cointegrated, then: (i) the VECM framework should be employed; and (ii) Granger causality must exist in at least one direction. Engle and Granger (1987) showed that if two non-stationary variables are cointegrated, a VAR in the first difference could be misspecified.…”

Section: Vector Error Correction Model (Vecm)mentioning

confidence: 99%

Does foreign direct investment cause economic growth? A dynamic panel data analysis for SADC countries

Mahembe

Odhiambo

2016

International Journal of Emerging Markets

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Purpose – The purpose of this paper is to examine the causal relationship between inward foreign direct investment (FDI) and economic growth in Southern African Development Community (SADC) countries over the period 1980-2012. It also investigates whether the causal relationship between FDI inflows and economic growth is dependent on the level of income. Design/methodology/approach – In order to assess whether the causal relationship between FDI inflows and economic growth is dependent on the level of income, the study divided the SADC countries into two groups, namely, the middle-income countries and the low-income countries. The study used the recent panel-data analysis methods to examine this linkage. The Granger causality test for the middle-income countries was conducted within a vector-error correction mechanism framework; while that of the low-income countries was conducted within a vector autoregressions framework. Findings – The results for the middle-income countries’ panel show that there is a uni-directional causal flow from GDP to FDI, and not vice versa. However, for the low-income countries’ panel, there was no evidence of causality in either direction. The study concludes that the FDI-led growth hypothesis does not apply to SADC countries. Research limitations/implications – Methodology applied in this study is a bivariate framework which is likely to suffer from the omission of variable bias (Odhiambo, 2008, 2011). Second, the Granger causality analysis employed in this only investigates the direction of causality and whether each variable can be used to explain another, but does not directly test for the mechanisms through which FDI leads to economic growth and economic growth leads to FDI. Practical implications – Future studies may include a third variable such as domestic savings, exports, or financial development in a trivariate or multivariate panel causality model. A more complete analysis which seeks to explain the channels through which FDI impacts growth is suggested for future studies. Lastly, sector level analysis will help policy makers draft effective industrial policies, which can guide allocation of incentives. Social implications – The results of this study support the Growth-led FDI hypothesis, but not the FDI-led growth hypothesis. In other words, it is economic growth that drives FDI inflows into the SADC region and into Southern Africa, and not vice versa. This implies that the recent high economic growth rates that have been recorded in some of the SADC countries, especially the middle-income countries, have led to a massive inflow of FDI into this region. Originality/value – At the regional level, SADC as a regional bloc has been actively pursuing policies and strategies aimed at attracting FDI into the region. Despite the important role of FDI in economic development, and the increase in FDI inflows into SADC countries in particular, there is a significant dearth of literature on the causal relationship between FDI and economic growth. The study used the recent panel-data analysis methods to examine the causal relationship between FDI and economic growth in SADC countries.

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Section: Vector Error Correction Model (Vecm)mentioning

confidence: 99%

Does foreign direct investment cause economic growth? A dynamic panel data analysis for SADC countries

Mahembe

Odhiambo

2016

International Journal of Emerging Markets

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“…More specifically, the empirical evidence points out that in Southeast Asian countries FDI contributes significantly to GDP growth (Bhatt, 2014;Moudatsou & Kyrkilis, 2011;Choong & Liew, 2009). Additionally, studies in which trade-related measures and FDI are included simultaneously to investigate long-run growth eff ects, reveal the presence of intricate interrelationships (Sothan, 2016;Tan & Tang, 2016;Bhatt, 2014).…”

Section: Theoretical and Empirical Backgroundmentioning

confidence: 99%

Economic openness and economic growth: A cointegration analysis for ASEAN-5 countries

Vogiatzoglou¹,

Thi²

2016

Eur J Appl Econ

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Abstract:The paper considers three channels of economic openness, namely FDI, imports, and exports, and examines their short-run and long-run effects on the economic growth in the five founding member countries of the Association of Southeast Asian Nations (ASEAN) over the period from 1980 to 2014. Besides the impact on the economic growth, the authors analyze all possible causal interrelationships to discern patterns and directions of causality among FDI, imports, exports, and GDP. The quantitative analysis, which is based on the vector error correction co-integration framework, is conducted separately for each country in order to assess their individual experiences and allow for a comparative view. Although the precise details differ across countries, the findings indicate that there is a long-run equilibrium relationship between economic openness and GDP in all ASEAN-5 economies. FDI, imports and exports have a significantly positive short-run and long-run impact on the economic growth. Our results also show that export-led growth is the most important economic growth factor in most countries, followed by FDI-led growth. Another crucial finding is the bi-directional causality between exports and FDI across the ASEAN-5 countries. This indicates the presence of direct and indirect effects on GDP and a self-reinforcing process of causality between those two variables, which strengthens their impact on the economic growth.

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“…Before proceeding for the Cointegration test, the econometric methodology says all the suggested variables in the model must be integrated in order I(1). Fowowe (2011) described that after testing the unit root there are two ways of testing the causality (i) the first condition is that when the variables are integrated in order I(1) and Cointegrated then the VECM is the best choice to be used, see also (Emirmahmutoglu & Kose, 2011;Fowowe, 2011;Moudatsou & Kyrkilis, 2011;Zhang, 2001) the (ii) way is that if the proposed variables are not integrated in the same order then the causality should be proceed by the VAR approach, see also (Fowowe, 2011;Toda & Phillips, 1993). But before going to the empirical analysis of a detailed summary of the proposed variables in Table 1.…”

Section: Data and Estimation Strategymentioning

confidence: 99%

Does Foreign Direct Investment Lead to Economic Growth? Evidences from Asian Developing Countries

Ali¹,

Mingque²

2018

IJEF

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The study about the interrelationship between FDI and economic growth in the host country is one of the hottest discussions. Some of the studies have evidence and consider FDI as the growth driver and some others don't. This study attempted to scrutinize the causal association of FDI with GDP in Indonesia, India, Malaysia and Bangladesh for the years of 1990 to 2014. Cointegration test has been applied in this study which shows that there is a long-term interrelationship within FDI and economic growth and then applied the Granger causality (GC) test which is based on the VECM. The short run results show that there are no evidence of causality direction from FDI to GDP and vice versa, whereas the long run results show that there is a positive impact of FDI and other variables to the GDP but not significant, and from GDP and other variables to FDI there is a negative interrelationship but significant. The results show the ambiguous interrelationship between FDI and economic growth.

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FDI and Economic Growth: Causality for the EU and ASEAN

Cited by 38 publications

References 48 publications

Does foreign direct investment cause economic growth? A dynamic panel data analysis for SADC countries

Does foreign direct investment cause economic growth? A dynamic panel data analysis for SADC countries

Economic openness and economic growth: A cointegration analysis for ASEAN-5 countries

Does Foreign Direct Investment Lead to Economic Growth? Evidences from Asian Developing Countries

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