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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.

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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  • Li, Yarui & Woodard, Joshua D. & Leatham, David J., 2013. "Causality among Foreign Direct Investment and Economic Growth: A Directed Acyclic Graph Approach," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 45(4), pages 617-637, November.
  • Handle: RePEc:cup:jagaec:v:45:y:2013:i:04:p:617-637_00
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    3. Dragan Miljkovic & Cole Goetz, 2020. "Destabilizing role of futures markets on North American hard red spring wheat spot prices," Agricultural Economics, International Association of Agricultural Economists, vol. 51(6), pages 887-897, November.
    4. Goetz, Cole & Miljkovic, Dragan & Barabanov, Nikita, 2021. "New empirical evidence in support of the theory of price volatility of storable commodities under rational expectations in spot and futures markets," Energy Economics, Elsevier, vol. 100(C).
    5. Sekmen, Fuat & Gökirmak, Haşmet, 2020. "Inflation and foreign direct investment in Turkey," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 60, pages 70-79.
    6. Miljkovic, Dragan & Goetz, Cole, 2020. "The effects of futures markets on oil spot price volatility in regional US markets," Applied Energy, Elsevier, vol. 273(C).
    7. Kwasi Boakye–Gyasi & Yao Li, 2017. "Fdi Trends In Ghana: The Role Of China, Us, India And South Africa," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 5(2), pages 1-16.

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    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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