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 World Institute for Development Economic Research (UNU-WIDER) in its series Working Paper Series with number RP2005/31.
Length: 24 pages
Date of creation: 2005
Date of revision:
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.
- 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.
- 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
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