IDEAS home Printed from
   My bibliography  Save this article

FDI and Growth: What Causes What?


  • Abdur Chowdhury
  • George Mavrotas


This paper examines the causal relationship between FDI and economic growth by using an innovative econometric methodology to study the direction of causality between the two variables. We apply our methodology, based on the Toda-Yamamoto test for causality, to time-series data covering the period 1969-2000 for three developing countries, namely Chile, Malaysia and Thailand, all of them major recipients of FDI with a different history of macroeconomic episodes, policy regimes and growth patterns. Our empirical findings clearly suggest that it is GDP that causes FDI in the case of Chile and not vice versa, while for both Malaysia and Thailand, there is a strong evidence of a bi-directional causality between the two variables. The robustness of the above findings is confirmed by the use of a bootstrap test employed to test the validity of our results. Copyright United Nations University 2006.

Suggested Citation

  • Abdur Chowdhury & George Mavrotas, 2006. "FDI and Growth: What Causes What?," The World Economy, Wiley Blackwell, vol. 29(1), pages 9-19, January.
  • Handle: RePEc:bla:worlde:v:29:y:2006:i:1:p:9-19

    Download full text from publisher

    File URL:
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    1. International Monetary Fund, 1998. "Do IMF-Supported Programs Work? A Survey of the Cross-Country Empirical Evidence," IMF Working Papers 98/169, International Monetary Fund.
    2. Przeworski, Adam & Vreeland, James Raymond, 2000. "The effect of IMF programs on economic growth," Journal of Development Economics, Elsevier, vol. 62(2), pages 385-421, August.
    3. Barro, Robert J. & Lee, Jong-Wha, 2005. "IMF programs: Who is chosen and what are the effects?," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1245-1269, October.
    4. Alberto Musso & Steven Phillips, 2002. "Comparing Projections and Outcomes of IMF-Supported Programs," IMF Staff Papers, Palgrave Macmillan, vol. 49(1), pages 1-3.
    5. Graham Bird, 2003. "The Implementation of IMF Programmes: A Conceptual Framework and a Policy Agenda," School of Economics Discussion Papers 1003, School of Economics, University of Surrey.
    6. Conway, Patrick, 1994. "IMF lending programs: Participation and impact," Journal of Development Economics, Elsevier, vol. 45(2), pages 365-391, December.
    7. Graham Bird & Thomas D Willett, 2004. "IMF Conditionality, Implementation and the New Political Economy of Ownership," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 46(3), pages 423-450, September.
    8. Evrensel, Ayse Y., 2002. "Effectiveness of IMF-supported stabilization programs in developing countries," Journal of International Money and Finance, Elsevier, vol. 21(5), pages 565-587, October.
    9. Graham Bird, 2008. "The implementation of IMF programs: A conceptual framework," The Review of International Organizations, Springer, vol. 3(1), pages 41-64, March.
    10. Mohsin S. Khan, 1990. "The Macroeconomic Effects of Fund-Supported Adjustment Programs," IMF Staff Papers, Palgrave Macmillan, vol. 37(2), pages 195-231, June.
    11. Harold Bierman, 2001. "Bad Market Days," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 2(3), pages 177-191, July.
    12. William Easterly, 2002. "The cartel of good intentions: The problem of bureaucracy in foreign aid," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 5(4), pages 223-250.
    13. Tony Killick & Moazzam Malik & Marcus Manuel, 1992. "What Can We Know About the Effects of IMF Programmes?," The World Economy, Wiley Blackwell, vol. 15(5), pages 575-598, September.
    14. Reza Baqir & Rodney Ramcharan & Ratna Sahay, 2005. "IMF Programs and Growth: Is Optimism Defensible?," IMF Staff Papers, Palgrave Macmillan, vol. 52(2), pages 260-286, September.
    15. Ramkishen Rajan & Graham Bird, 2001. "Economic Globalisation," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 2(3), pages 1-18, July.
    16. Graham Bird, 2002. "The Completion Rate of IMF Programmes: What We Know, Don't Know and Need to Know," The World Economy, Wiley Blackwell, vol. 25(6), pages 833-847, June.
    17. Edwards, Sebastian, 1989. "The international monetary fund and the developing countries: A critical evaluation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 31(1), pages 7-68, January.
    18. Ales Bulir & Marianne Schulze-Gattas & Atish R. Ghosh & Alex Mourmouras & A. Javier Hamann & Timothy D. Lane, 2002. "IMF-Supported Programs in Capital Account Crises; Design and Experience," IMF Occasional Papers 210, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:worlde:v:29:y:2006:i:1:p:9-19. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.