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The Impact of Foreign Direct Investment on Economic Growth : A Case Study of Ireland

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  • Kyuntae Kim

    (Korea Institute for International Economic Policy)

  • Hokyung Bang
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    Abstract

    This study examines the long-run and the short-run relationships between foreign direct investment and economic growth in Ireland. Using an augmented aggregate production function growth model, we applied the bounds testing approach to cointegration, which is more appropriate for estimating small sample studies. The data span for the study is from 1975 to 2006. The results indicate that foreign capital (FDI), domestic capital, and trade are statistically significant in both the long-run and the short-run, having positive effects on economic growth in Ireland. The causality analysis also suggests that there is a bi-directional Granger causality between GDP and FDI, and thus, we conclude that the FDI-led growth hypothesis is valid for the Irish economy.

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    Bibliographic Info

    Paper provided by East Asian Bureau of Economic Research in its series Development Economics Working Papers with number 22993.

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    Date of creation: Jan 2008
    Date of revision:
    Handle: RePEc:eab:develo:22993

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    Related research

    Keywords: FDI; Ireland; Cointegration; Unit Roots; Bounds Test; Error Correction Models; Granger Causality;

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    References

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    1. Theodore H. Moran & Edward M. Graham & Magnus Blomstrom, 2005. "Does Foreign Direct Investment Promote Development?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 3810.
    2. V N Balasubramanyam & M Salisu & David Sapsford., . "Foreign Direct Investment and Growth in EP and IS Countries," Working Papers ec18/94, Department of Economics, University of Lancaster.
    3. Khan, Saleem M., 2006. "T.H. Moran, E.M. Grahm and M. Blomstrom, Editors, Does Foreign Direct Investment Promote Development?, Institute for International Economics, Washington, DC (April 2005).T. Ito and A.D. Kruger, Editor," Journal of Asian Economics, Elsevier, vol. 17(6), pages 1128-1130, December.
    4. Barrios, Salvador & Gorg, Holger & Strobl, Eric, 2005. "Foreign direct investment, competition and industrial development in the host country," European Economic Review, Elsevier, vol. 49(7), pages 1761-1784, October.
    5. Bruce A. Blonigen & Miao Wang, 2004. "Inappropriate Pooling of Wealthy and Poor Countries in Empirical FDI Studies," Working Papers and Research 0903, Marquette University, Center for Global and Economic Studies and Department of Economics.
    6. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
    7. Frances Ruane & Ali Uğur, 2005. "Foreign direct investment and productivity spillovers in Irish manufacturing industry: evidence from plant level panel data," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 12(1), pages 53-66.
    8. 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.
    9. Nair-Reichert, Usha & Weinhold, Diana, 2001. " Causality Tests for Cross-Country Panels: A New Look at FDI and Economic Growth in Developing Countries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 63(2), pages 153-71, May.
    10. Frimpong, Joseph Magnus & Oteng-Abayie, Eric Fosu, 2006. "Bounds testing approach: an examination of foreign direct investment, trade, and growth relationships," MPRA Paper 352, University Library of Munich, Germany, revised 09 Oct 2006.
    11. Barry, F & Bradley, J, 1997. ""FDI and Trade : The Irish Host-Country Experience"," Papers 97/13, College Dublin, Department of Political Economy-.
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    Cited by:
    1. Fambon, Samuel, 2013. "Foreign capital inflow and economic growth in Cameroon," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).

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