Revisiting the FDI-led growth Hypothesis: The case of China
We employ simulation based inference to investigate the causal relationship between foreign direct investment and gross domestic product in China for the 1982–2008 period, both in a bivariate and a multivariate framework. Our maximum entropy bootstrap based approach, which avoids pre-test biases while also being less affected from the size distortion problem, shows that a statistically significant relationship between FDI and GDP growth does not exist. We also explore whether this result is driven by the level of financial development and we find that there is no evidence of a change in the noncausal relationship due to this contingency effect. Our results indicate that FDI does not necessarily lead to higher economic growth at the aggregate level and suggest the need for undertaking disaggregated analyses using industrial and provincial level data for the formulation of effective macroeconomic policies concerning the flows of FDI.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Elissa Braunstein & Gerald Epstein, 2002.
"Bargaining Power and Foreign Direct Investment in China: Can 1.3 Billion Consumers Tame the Multinationals?,"
SCEPA working paper series. SCEPA's main areas of research are macroeconomic policy, inequality and poverty, and globalization.
2002-13, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
- Gerald Epstein & Elissa Braunstein, 2002. "Bargaining Power and Foreign Direct Investment in China: Can 1.3 Billion Consumers Tame the Multinationals?," Working Papers wp45, Political Economy Research Institute, University of Massachusetts at Amherst.
- Phillips, P C B, 1987.
"Time Series Regression with a Unit Root,"
Econometric Society, vol. 55(2), pages 277-301, March.
- Tom Doan, . "PPUNIT: RATS procedure to perform Phillips-Perron Unit Root test," Statistical Software Components RTS00160, Boston College Department of Economics.
- Peter C.B. Phillips, 1985. "Time Series Regression with a Unit Root," Cowles Foundation Discussion Papers 740R, Cowles Foundation for Research in Economics, Yale University, revised Feb 1986.
- Balasubramanyam, V N & Salisu, M & Sapsford, David, 1996.
"Foreign Direct Investment and Growth in EP and IS Countries,"
Royal Economic Society, vol. 106(434), pages 92-105, January.
- 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.
- Ran, Jimmy & Voon, Jan P. & Li, Guangzhong, 2007. "How does FDI affect China? Evidence from industries and provinces," Journal of Comparative Economics, Elsevier, vol. 35(4), pages 774-799, December.
- Sebnem Kalemli-Ozcan & Laura Alfaro & Selin Sayek & Areendam Chanda, 2002.
"FDI and Economic Growth: The Role of Local Financial Markets,"
- 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.
- Toda, Hiro Y & Phillips, Peter C B, 1993.
"Vector Autoregressions and Causality,"
Econometric Society, vol. 61(6), pages 1367-93, November.
- Jai Sheen Mah, 2010. "Foreign Direct Investment Inflows and Economic Growth: The Case of Korea," Review of Development Economics, Wiley Blackwell, vol. 14(4), pages 726-735, November.
- Franklin Allen & Jun Qian & Meijun Qian, 2002.
"Law, Finance, and Economic Growth in China,"
Center for Financial Institutions Working Papers
02-44, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Mantalos Panagiotis, 2000. "A Graphical Investigation of the Size and Power of the Granger-Causality Tests in Integrated-Cointegrated VAR Systems," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 4(1), pages 1-18, April.
- Jahangir Aziz & Christoph Duenwald, 2002. "Growth-Financial Intermediation Nexus in China," IMF Working Papers 02/194, International Monetary Fund.
- Changwen Zhao & Jiang Du, 2007. "Causality Between FDI and Economic Growth in China," Chinese Economy, M.E. Sharpe, Inc., vol. 40(6), pages 68-82, November.
- Azman-Saini, W.N.W. & Law, Siong Hook & Ahmad, Abdul Halim, 2009.
"FDI and economic growth: new evidence on the role of financial markets,"
65852, University Library of Munich, Germany.
- Azman-Saini, W.N.W. & Law, Siong Hook & Ahmad, Abd Halim, 2010. "FDI and economic growth: New evidence on the role of financial markets," Economics Letters, Elsevier, vol. 107(2), pages 211-213, May.
- Chen, Chung & Chang, Lawrence & Zhang, Yimin, 1995. "The role of foreign direct investment in China's post-1978 economic development," World Development, Elsevier, vol. 23(4), pages 691-703, April.
- Mah, Jai S., 2010. "Foreign direct investment inflows and economic growth of China," Journal of Policy Modeling, Elsevier, vol. 32(1), pages 155-158, January.
- Sumei Tang & E. A. Selvanathan & S. Selvanathan, 2008.
"Foreign Direct Investment, Domestic Investment and Economic Growth in China: A Time Series Analysis,"
The World Economy,
Wiley Blackwell, vol. 31(10), pages 1292-1309, October.
- Tang, Sumei & Selvanathan, E.A. & Selvanathan, S., 2008. "Foreign Direct Investment, Domestic Investment, and Economic Growth in China: A Time Series Analysis," Working Paper Series RP2008/19, World Institute for Development Economic Research (UNU-WIDER).
- Andreas Koutris & Maria Heracleous & Aris Spanos, 2008. "Testing for Nonstationarity Using Maximum Entropy Resampling: A Misspecification Testing Perspective," Econometric Reviews, Taylor & Francis Journals, vol. 27(4-6), pages 363-384.
- Ying Xu, 2012. "How does financial system efficiency affect the growth impact of FDI in China?: Evidence from provincial data 1999-2006," China Finance Review International, Emerald Group Publishing, vol. 2(2), pages 406-428, August.
- Cheung Kui-yin & Lin, Ping, 2004. "Spillover effects of FDI on innovation in China: Evidence from the provincial data," China Economic Review, Elsevier, vol. 15(1), pages 25-44.
- Luiz de Mello, 1997. "Foreign direct investment in developing countries and growth: A selective survey," Journal of Development Studies, Taylor & Francis Journals, vol. 34(1), pages 1-34.
- Vinod, Hrishikesh D. & Lopez-de-Lacalle, Javier, 2009. "Maximum Entropy Bootstrap for Time Series: The meboot R Package," Journal of Statistical Software, Foundation for Open Access Statistics, vol. 29(i05).
- Görg, Holger & Greenaway, David, 2003.
"Much Ado About Nothing? Do Domestic Firms Really Benefit from Foreign Direct Investment?,"
IZA Discussion Papers
944, Institute for the Study of Labor (IZA).
- Holger Görg & David Greenaway, 2004. "Much Ado about Nothing? Do Domestic Firms Really Benefit from Foreign Direct Investment?," World Bank Research Observer, World Bank Group, vol. 19(2), pages 171-197.
- Yalta, A. Talha, 2011.
"Analyzing energy consumption and GDP nexus using maximum entropy bootstrap: The case of Turkey,"
Elsevier, vol. 33(3), pages 453-460, May.
- A. Talha Yalta, 2011. "Analyzing Energy Consumption and GDP Nexus Using Maximum Entropy Bootstrap: The Case of Turkey," Working Papers 1103, TOBB University of Economics and Technology, Department of Economics.
- Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, December.
- Robert E. Lipsey, 2002. "Home and Host Country Effects of FDI," NBER Working Papers 9293, National Bureau of Economic Research, Inc.
- Dees, Stephane, 2001. "The opening policy in China: Simulations of a macroeconometric model," Journal of Policy Modeling, Elsevier, vol. 23(4), pages 397-410, May.
- Jordan Shan, 2002. "A VAR approach to the economics of FDI in China," Applied Economics, Taylor & Francis Journals, vol. 34(7), pages 885-893.
- James Laurenceson & Kam Ki Tang, . "The FDI-Income Growth Nexus: a review of the Chinese experience," EAERG Discussion Paper Series 0905, School of Economics, University of Queensland, Australia.
- Eduardo Borensztein & Jose De Gregorio & Jong-Wha Lee, 1995.
"How Does Foreign Direct Investment Affect Economic Growth?,"
NBER Working Papers
5057, National Bureau of Economic Research, Inc.
- Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998. "How does foreign direct investment affect economic growth?1," Journal of International Economics, Elsevier, vol. 45(1), pages 115-135, June.
- Huang, Yasheng, 2003. "One country, two systems: Foreign-invested enterprises and domestic firms in China," China Economic Review, Elsevier, vol. 14(4), pages 404-416.
- Xiaohui Liu & Peter Burridge & P. J. N. Sinclair, 2002. "Relationships between economic growth, foreign direct investment and trade: evidence from China," Applied Economics, Taylor & Francis Journals, vol. 34(11), pages 1433-1440.
- Chen, Baizhu & Feng, Yi, 2000. "Determinants of economic growth in China: Private enterprise, education, and openness," China Economic Review, Elsevier, vol. 11(1), pages 1-15.
- World Bank, 2010. "World Development Indicators 2010," World Bank Publications, The World Bank, number 4373, July.
- Herzer, Dierk & Klasen, Stephan & Nowak-Lehmann D., Felicitas, 2008. "In search of FDI-led growth in developing countries: The way forward," Economic Modelling, Elsevier, vol. 25(5), pages 793-810, September.
- Vinod, H. D., 2004. "Ranking mutual funds using unconventional utility theory and stochastic dominance," Journal of Empirical Finance, Elsevier, vol. 11(3), pages 353-377, June.
- Vinod, Hrishikesh D., 2006. "Maximum entropy ensembles for time series inference in economics," Journal of Asian Economics, Elsevier, vol. 17(6), pages 955-978, December.
- Ann E. Harrison & Brian J. Aitken, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, vol. 89(3), pages 605-618, June.
When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:31:y:2013:i:c:p:335-343. 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: (Shamier, Wendy)
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.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 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.