More than just investment: Causality analysis between foreign direct investment and economic growth

Abstract

This study examines the causal nexus between Foreign Direct Investment (FDI) and the economic growth of seven (7) regions encompassing 117 countries. A more recent panel dataset over the period 2010–2020 was analysed using the Granger causality approach and panel VAR/block exogeneity test to conduct predictive analysis among the panel series. Wavelet coherence techniques too were adapted in bringing novelty and further justifications to the research in exploring the interaction effects of the variables, which are yet to be popularised in the studied discipline. The empirical results indicate the presence of bi-directional causality between FDI and economic growth globally and in the Asian region. In contrast, the causality is uni-directional in the American region. A non-directional causality was discovered in European, Oceanian, Mediterranean, and African regions, and the findings were consistent with the outcome of the wavelet coherence technique results. The study further classifies the regions into three cross-market categories such as developed, emerging and frontier markets. The results imply no causality for most developed and emerging economies in the regional analysis. Findings also provide insights for governments and policymakers worldwide to formulate policies on directing FDI flows and propositions for a host country to become a more conducive destination for FDI and accelerate economic growth.

Effects of sectoral structure of foreign direct investment on economic development: The case of European developing countries

“…However, Mahembe & Odhiambo (2022), point out that for the lowincome countries' panel, there was no evidence of causality in either direction. Nupehewa et al (2022) analyzing the period from 2010 to 2020, point out that the results do not imply a causal relationship for most developed and developing economies in a regional analysis. Cvetanović et al (2018) acknowledge the benefits of FDI, but also emphasize the importance of recognizing that FDI should not be seen as a substitute for domestic savings.…”

From short to long term: Dynamic analysis of FDI and net export in global regions

“…There are different approaches to testing causality in panel data series. This study used cross-country VAR Granger analysis [ 62 , 63 , 69 , 70 ], to evaluate the causality between FDI and NE for each country undertaken in the study. Initially, the study ran the Augmented Dickey–Fuller test (ADF/dfuller) [ 71 ] and Phillips–Perron test (PP) [ 58 ] to assess the stationary (H 0 : δ = 0) and non-stationary (H A : δ ≠ 0) of the two-time series [ 72 ].…”

Causality relationship between foreign direct investments and economic improvement for developing economies: Russia case study

“…This instance demonstrates how a country's economy might grow by luring foreign investors to make direct investments there. In the paper [13] the relationship between foreign direct investment (FDI) and the expansion of 117 nations throughout seven regions are investigated. The Granger causality approach and panel VAR/block exogeneity test were used to conduct predictive analysis among the panel series on a more recent panel dataset covering the years 2010-2020.…”