On the Causal Links between FDI and Growth in Developing Countries
AbstractWe 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 InfoPaper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 04-30.
Length: 21 pages
Date of creation: Dec 2004
Date of revision:
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economic growth; foreign direct investment; Granger causality; panel data;
Other versions of this item:
- Henrik Hansen & John Rand, 2006. "On the Causal Links Between FDI and Growth in Developing Countries," The World Economy, Wiley Blackwell, vol. 29(1), pages 21-41, 01.
- Hansen, Henrik & Rand, John, 2005. "On the Causal Links between FDI and Growth in Developing Countries," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) RP2005/31, World Institute for Development Economic Research (UNU-WIDER).
- O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
This paper has been announced in the following NEP Reports:
- NEP-AFR-2004-12-20 (Africa)
- NEP-ALL-2004-12-20 (All new papers)
- NEP-DEV-2004-12-20 (Development)
- NEP-IFN-2004-12-20 (International Finance)
- NEP-SEA-2004-12-20 (South East Asia)
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