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Causality among Foreign Direct Investment and Economic Growth: A Directed Acyclic Graph Approach

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  • Li, Yarui
  • Woodard, Joshua D.
  • Leatham, David J.
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    Abstract

    With the aim of examining the causal structure between foreign direct investment (FDI) and economic growth, this study derives inductive causal inference using the directed acyclic graph approach, which makes no a priori causal assumptions. There are three major findings of this study. First, economic growth causes FDI inflows for developing countries, whereas FDI induces economic growth for developed countries. Second, trade is an important intermediary to facilitate the interaction between FDI and other factors. Third, the stock market is found to be an intermediary that amplifies the influence on FDI from many causal variables of FDI for developed countries.

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    Bibliographic Info

    Article provided by Southern Agricultural Economics Association in its journal Journal of Agricultural and Applied Economics.

    Volume (Year): 45 (2013)
    Issue (Month): 04 (November)
    Pages:

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    Handle: RePEc:ags:joaaec:157392

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    Related research

    Keywords: causality; economic growth; DAG; FDI; International Relations/Trade; F21;

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    1. Evans, Paul, 1996. "Using cross-country variances to evaluate growth theories," Journal of Economic Dynamics and Control, Elsevier, vol. 20(6-7), pages 1027-1049.
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    12. Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998. "How does foreign direct investment affect economic growth?1," Journal of International Economics, Elsevier, vol. 45(1), pages 115-135, June.
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    15. David A Bessler & Jian Yang & Metha Wongcharupan, 2003. "Price Dynamics in the International Wheat Market: Modeling with Error Correction and Directed Acyclic Graphs," Journal of Regional Science, Wiley Blackwell, vol. 43(1), pages 1-33.
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