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Missing causality links between foreign direct investment, exports, domestic investment and economic growth

Author

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  • Brinda Sooreea-Bheemul
  • Rajeev Sooreea

Abstract

This paper employs panel Granger causality techniques to identify long-run causal relations among FDI, exports, domestic investment and economic growth in 28 developing and emerging countries between 1980 and 1998. The results indicate uni-directional causality from economic growth to domestic investment but bi-directional causality between all other variable pairs. FDI appears to be superior to domestic investment in terms of its spillover and linkage effects, consistent with the new trade theory. It Granger-causes domestic investment, exports and economic growth. In turn, these lead to more FDI thus reinforcing the cycle. More exports also lead to higher economic growth. However, the missing causal link from domestic investment to economic growth together with bi-directional causalities between domestic investment, export-promoting FDI and growth-promoting FDI suggest that developing and emerging countries should not ignore their domestic investors at the expense of FDI and exports.

Suggested Citation

  • Brinda Sooreea-Bheemul & Rajeev Sooreea, 2013. "Missing causality links between foreign direct investment, exports, domestic investment and economic growth," International Journal of Business and Emerging Markets, Inderscience Enterprises Ltd, vol. 5(4), pages 322-340.
    • Handle: RePEc:ids:ijbema:v:5:y:2013:i:4:p:322-340
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    Citations

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    Cited by:

    1. Bakari, Sayef, 2021. "Reinvest the relationship between exports and economic growth in African countries: New insights from innovative econometric methods," MPRA Paper 108785, University Library of Munich, Germany.
    2. Brinda Sooreea-Bheemul & Uzma Shataz Rasool & Rajeev Sooreea, 2020. "Does Economic Freedom Matter to Foreign Direct Investment in Sub-Saharan Africa?," International Journal of Economics and Financial Issues, Econjournals, vol. 10(3), pages 195-207.
    3. Melisa Chanegriha & Chris Stewart & Christopher Tsoukis, 2020. "Testing for causality between FDI and economic growth using heterogeneous panel data," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 29(5), pages 546-565, July.
    4. Ben Yedder, Nadia & El Weriemmi, Malek & Bakari, Sayef, 2023. "The Impact of Domestic Investment and Trade on Economic Growth in North Africa Countries: New Evidence from Panel CS-ARDL Model," MPRA Paper 117956, University Library of Munich, Germany.
    5. Bakari, Sayef & Fakraoui, Nissar & Mabrouki, Mohamed, 2020. "The Contribution of Domestic Investment, Exports and Imports on Economic Growth: A Case Study of Peru," MPRA Paper 99041, University Library of Munich, Germany.
    6. Yilmaz BAYAR, 2014. "Savings, Foreign Direct Investment Inflows and Economic Growth in Emerging Asian Economies," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(8), pages 1106-1122, August.

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