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Liberalization, FDI, and Growth in Developing Countries: A Panel Cointegration Approach

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  • Parantap Basu
  • Chandana Chakraborty
  • Derrick Reagle

Abstract

Using a panel cointegration framework, the article explores the two-way link between FDI and growth for a panel of 23 developing countries. In addition, it investigates the impact of liberalization on the dynamics of the FDI and GDP relationship. A long-run cointegrating relationship is found between FDI and GDP after allowing for heterogeneous country effects. The cointegrating vectors reveal a bidirectional causality between GDP and FDI for more open economies. For relatively closed economies, long-run causality appears unidirectional and runs from GDP to FDI, implying that growth and FDI are not mutually reinforcing under restrictive trade and investment regimes. (JEL F43) Copyright 2003, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/ei/cbg024
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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 41 (2003)
Issue (Month): 3 (July)
Pages: 510-516

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Handle: RePEc:oup:ecinqu:v:41:y:2003:i:3:p:510-516

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Cited by:
  1. Olajide Oladipo, 2013. "Does foreign direct investment cause long run economic growth? Evidence from the Latin American and the Caribbean countries," International Economics and Economic Policy, Springer, vol. 10(4), pages 569-582, December.
  2. Henrik Hansen & John Rand, 2004. "On the Causal Links between FDI and Growth in Developing Countries," Discussion Papers 04-30, University of Copenhagen. Department of Economics.
  3. Dierk Herzer & Stephan Klasen & Felicitas Nowak-Lehmann D., 2006. "In search of FDI-led growth in developing countries," Ibero America Institute for Econ. Research (IAI) Discussion Papers 150, Ibero-America Institute for Economic Research.
  4. Nabila Asghar & Samia Nasreen & Hafeez ur Rehman, 2012. "Relationship between FDI and Economic Growth in Selected Asian Countries: A Panel Data Analysis," Review of Economics & Finance, Better Advances Press, Canada, vol. 2, pages 84-96, February.
  5. Bilgili, Faik & Tülüce, Nadide Sevil Halıcı & Doğan, İbrahim, 2012. "The determinants of FDI in Turkey: A Markov Regime-Switching approach," Economic Modelling, Elsevier, vol. 29(4), pages 1161-1169.
  6. Chakraborty, Chandana & Rawlins, Glenville, 2004. "Financial resource flows, macro policy response, and the socio-economic environment: the experience of Latin America and East Asia," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 33(4), pages 469-489, September.
  7. Chakraborty, Chandana & Nunnenkamp, Peter, 2008. "Economic Reforms, FDI, and Economic Growth in India: A Sector Level Analysis," World Development, Elsevier, vol. 36(7), pages 1192-1212, July.
  8. Tekin, Rıfat Barış, 2012. "Economic growth, exports and foreign direct investment in Least Developed Countries: A panel Granger causality analysis," Economic Modelling, Elsevier, vol. 29(3), pages 868-878.
  9. Olajide S. OLADIPO, 2012. "Does Foreign Direct Investment cause long run Economic Growth? Evidence from the Latin America and the Caribbean Countries," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 12(1).
  10. Calderon, Cesar & Loayza, Norman & Serven, Luis, 2004. "Greenfield foreign direct investment and mergers and acquisitions - feedback and macroeconomic effects," Policy Research Working Paper Series 3192, The World Bank.
  11. 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.
  12. Lee, Chien-Chiang, 2005. "Energy consumption and GDP in developing countries: A cointegrated panel analysis," Energy Economics, Elsevier, vol. 27(3), pages 415-427, May.
  13. Ng, Linda Fung-Yee & Tuan, Chyau, 2006. "Spatial agglomeration, FDI, and regional growth in China: Locality of local and foreign manufacturing investments," Journal of Asian Economics, Elsevier, vol. 17(4), pages 691-713, October.
  14. Bengoa, Marta & Sanchez-Robles, Blanca, 2005. "Policy shocks as a source of endogenous growth," Journal of Policy Modeling, Elsevier, vol. 27(2), pages 249-261, March.
  15. Ranjan Dash & P. Parida, 2013. "FDI, services trade and economic growth in India: empirical evidence on causal links," Empirical Economics, Springer, vol. 45(1), pages 217-238, August.
  16. Beugelsdijk, Sjoerd & Smeets, Roger & Zwinkels, Remco, 2008. "The impact of horizontal and vertical FDI on host's country economic growth," International Business Review, Elsevier, vol. 17(4), pages 452-472, August.
  17. Temiz, Dilek & Gökmen, Aytaç, 2014. "FDI inflow as an international business operation by MNCs and economic growth: An empirical study on Turkey," International Business Review, Elsevier, vol. 23(1), pages 145-154.
  18. Mastromarco, Camilla & Ghosh, Sucharita, 2009. "Foreign Capital, Human Capital, and Efficiency: A Stochastic Frontier Analysis for Developing Countries," World Development, Elsevier, vol. 37(2), pages 489-502, February.

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