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On the Causal Links between FDI and Growth in Developing Countries

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  • Henrik Hansen

    (Institute of Economics, University of Copenhagen)

  • John Rand

    (Institute of Economics, University of Copenhagen)

Abstract

We analyse the Granger-causal relationships between foreign direct investment (FDI) and GDP in a sample of 31 developing countries covering the period 1970-2000. Using estimators for heterogeneous panel data we find bi-directional causality between the FDI/GDP ratio and the level of GDP. FDI is found to have a lasting impact on the level of GDP, while GDP has no long run impact on the FDI/GDP ratio. In that sense FDI causes growth. Furthermore, in a model for GDP and FDI as a fraction of gross capital formation (GCF) we also find long run effects of shifts in the mean level of FDI/GCF. We interpret this finding as evidence in favour of the hypotheses that FDI has an impact on GDP via knowledge transfers and adoption of new technology.

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Bibliographic Info

Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 04-30.

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Length: 21 pages
Date of creation: Dec 2004
Date of revision:
Handle: RePEc:kud:kuiedp:0430

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Keywords: economic growth; foreign direct investment; Granger causality; panel data;

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  1. Utländskt kapital ökar BNP
    by nonicoclolasos in Nonicoclolasos on 2009-09-28 09:56:59
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