Revisiting the FDI-led growth Hypothesis: The case of China
AbstractWe employ simulation based inference to investigate the causal relationship between foreign direct investment and gross domestic product in China for the 1982–2008 period, both in a bivariate and a multivariate framework. Our maximum entropy bootstrap based approach, which avoids pre-test biases while also being less affected from the size distortion problem, shows that a statistically significant relationship between FDI and GDP growth does not exist. We also explore whether this result is driven by the level of financial development and we find that there is no evidence of a change in the noncausal relationship due to this contingency effect. Our results indicate that FDI does not necessarily lead to higher economic growth at the aggregate level and suggest the need for undertaking disaggregated analyses using industrial and provincial level data for the formulation of effective macroeconomic policies concerning the flows of FDI.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Economic Modelling.
Volume (Year): 31 (2013)
Issue (Month): C ()
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/30411
FDI; Economic growth; China; Bootstrap;
Find related papers by JEL classification:
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
- C5 - Mathematical and Quantitative Methods - - Econometric Modeling
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- V N Balasubramanyam & M Salisu & David Sapsford., .
"Foreign Direct Investment and Growth in EP and IS Countries,"
ec18/94, Department of Economics, University of Lancaster.
- Balasubramanyam, V N & Salisu, M & Sapsford, David, 1996. "Foreign Direct Investment and Growth in EP and IS Countries," Economic Journal, Royal Economic Society, vol. 106(434), pages 92-105, January.
- Herzer, Dierk & Klasen, Stephan & Nowak-Lehmann D., Felicitas, 2008. "In search of FDI-led growth in developing countries: The way forward," Economic Modelling, Elsevier, vol. 25(5), pages 793-810, September.
- Huang, Yasheng, 2003. "One country, two systems: Foreign-invested enterprises and domestic firms in China," China Economic Review, Elsevier, vol. 14(4), pages 404-416.
- Robert E. Lipsey, 2002. "Home and Host Country Effects of FDI," NBER Working Papers 9293, National Bureau of Economic Research, Inc.
- Sebnem Kalemli-Ozcan & Laura Alfaro & Selin Sayek & Areendam Chanda, 2002.
"FDI and Economic Growth: The Role of Local Financial Markets,"
- Alfaro, Laura & Chanda, Areendam & Kalemli-Ozcan, Sebnem & Sayek, Selin, 2004. "FDI and economic growth: the role of local financial markets," Journal of International Economics, Elsevier, vol. 64(1), pages 89-112, October.
- Ann E. Harrison & Brian J. Aitken, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, vol. 89(3), pages 605-618, June.
- Xiaohui Liu & Peter Burridge & P. J. N. Sinclair, 2002. "Relationships between economic growth, foreign direct investment and trade: evidence from China," Applied Economics, Taylor & Francis Journals, vol. 34(11), pages 1433-1440.
- Phillips, P C B, 1987.
"Time Series Regression with a Unit Root,"
Econometric Society, vol. 55(2), pages 277-301, March.
- Peter C.B. Phillips, 1985. "Time Series Regression with a Unit Root," Cowles Foundation Discussion Papers 740R, Cowles Foundation for Research in Economics, Yale University, revised Feb 1986.
- Tom Doan, . "PPUNIT: RATS procedure to perform Phillips-Perron Unit Root test," Statistical Software Components RTS00160, Boston College Department of Economics.
- Tang, Sumei & Selvanathan, E.A. & Selvanathan, S., 2008.
"Foreign Direct Investment, Domestic Investment, and Economic Growth in China: A Time Series Analysis,"
Working Paper Series
RP2008/19, World Institute for Development Economic Research (UNU-WIDER).
- Sumei Tang & E. A. Selvanathan & S. Selvanathan, 2008. "Foreign Direct Investment, Domestic Investment and Economic Growth in China: A Time Series Analysis," The World Economy, Wiley Blackwell, vol. 31(10), pages 1292-1309, October.
- Vinod, H. D., 2004. "Ranking mutual funds using unconventional utility theory and stochastic dominance," Journal of Empirical Finance, Elsevier, vol. 11(3), pages 353-377, June.
- Görg, Holger & Greenaway, David, 2003.
"Much Ado About Nothing? Do Domestic Firms Really Benefit from Foreign Direct Investment?,"
IZA Discussion Papers
944, Institute for the Study of Labor (IZA).
- Holger Görg & David Greenaway, 2004. "Much Ado about Nothing? Do Domestic Firms Really Benefit from Foreign Direct Investment?," World Bank Research Observer, World Bank Group, vol. 19(2), pages 171-197.
- Mantalos Panagiotis, 2000. "A Graphical Investigation of the Size and Power of the Granger-Causality Tests in Integrated-Cointegrated VAR Systems," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 4(1), pages 1-18, April.
- Gerald Epstein & Elissa Braunstein, 2002.
"Bargaining Power and Foreign Direct Investment in China: Can 1.3 Billion Consumers Tame the Multinationals?,"
wp45, Political Economy Research Institute, University of Massachusetts at Amherst.
- Elissa Braunstein & Gerald Epstein, 2002. "Bargaining Power and Foreign Direct Investment in China: Can 1.3 Billion Consumers Tame the Multinationals?," SCEPA working paper series. SCEPA's main areas of research are macroeconomic policy, inequality and poverty, and globalization. 2002-13, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
- Changwen Zhao & Jiang Du, 2007. "Causality Between FDI and Economic Growth in China," Chinese Economy, M.E. Sharpe, Inc., vol. 40(6), pages 68-82, November.
- World Bank, 2010. "World Development Indicators 2010," World Bank Publications, The World Bank, number 4373, July.
- Toda, Hiro Y & Phillips, Peter C B, 1993.
"Vector Autoregressions and Causality,"
Econometric Society, vol. 61(6), pages 1367-93, November.
- Cheung Kui-yin & Lin, Ping, 2004. "Spillover effects of FDI on innovation in China: Evidence from the provincial data," China Economic Review, Elsevier, vol. 15(1), pages 25-44.
- 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.
- Eduardo Borensztein & Jose De Gregorio & Jong-Wha Lee, 1995. "How Does Foreign Direct Investment Affect Economic Growth?," NBER Working Papers 5057, National Bureau of Economic Research, Inc.
- Luiz de Mello, 1997. "Foreign direct investment in developing countries and growth: A selective survey," Journal of Development Studies, Taylor & Francis Journals, vol. 34(1), pages 1-34.
- Hrishikesh D. Vinod & Javier Lopez-de-Lacalle, . "Maximum Entropy Bootstrap for Time Series: The meboot R Package," Journal of Statistical Software, American Statistical Association, vol. 29(i05).
- Franklin Allen & Jun Qian & Meijun Qian, 2002.
"Law, Finance, and Economic Growth in China,"
Center for Financial Institutions Working Papers
02-44, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Jahangir Aziz & Christoph Duenwald, 2002. "Growth-Financial Intermediation Nexus in China," IMF Working Papers 02/194, International Monetary Fund.
- Chen, Baizhu & Feng, Yi, 2000. "Determinants of economic growth in China: Private enterprise, education, and openness," China Economic Review, Elsevier, vol. 11(1), pages 1-15.
- Ying Xu, 2012. "How does financial system efficiency affect the growth impact of FDI in China?: Evidence from provincial data 1999-2006," China Finance Review International, Emerald Group Publishing, vol. 2(2), pages 406-428, August.
- Jai Sheen Mah, 2010. "Foreign Direct Investment Inflows and Economic Growth: The Case of Korea," Review of Development Economics, Wiley Blackwell, vol. 14(4), pages 726-735, November.
- Vinod, Hrishikesh D., 2006. "Maximum entropy ensembles for time series inference in economics," Journal of Asian Economics, Elsevier, vol. 17(6), pages 955-978, December.
- Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, October.
- Mah, Jai S., 2010. "Foreign direct investment inflows and economic growth of China," Journal of Policy Modeling, Elsevier, vol. 32(1), pages 155-158, January.
- Ran, Jimmy & Voon, Jan P. & Li, Guangzhong, 2007. "How does FDI affect China? Evidence from industries and provinces," Journal of Comparative Economics, Elsevier, vol. 35(4), pages 774-799, December.
- Jordan Shan, 2002. "A VAR approach to the economics of FDI in China," Applied Economics, Taylor & Francis Journals, vol. 34(7), pages 885-893.
- Chen, Chung & Chang, Lawrence & Zhang, Yimin, 1995. "The role of foreign direct investment in China's post-1978 economic development," World Development, Elsevier, vol. 23(4), pages 691-703, April.
- Dees, Stephane, 2001. "The opening policy in China: Simulations of a macroeconometric model," Journal of Policy Modeling, Elsevier, vol. 23(4), pages 397-410, May.
- Azman-Saini, W.N.W. & Law, Siong Hook & Ahmad, Abd Halim, 2010. "FDI and economic growth: New evidence on the role of financial markets," Economics Letters, Elsevier, vol. 107(2), pages 211-213, May.
- Andreas Koutris & Maria Heracleous & Aris Spanos, 2008. "Testing for Nonstationarity Using Maximum Entropy Resampling: A Misspecification Testing Perspective," Econometric Reviews, Taylor & Francis Journals, vol. 27(4-6), pages 363-384.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If references are entirely missing, you can add them using this form.