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Revisiting the FDI-led growth Hypothesis: The case of China

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  • Yalta, A. Yasemin

Abstract

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.

Suggested Citation

  • Yalta, A. Yasemin, 2013. "Revisiting the FDI-led growth Hypothesis: The case of China," Economic Modelling, Elsevier, vol. 31(C), pages 335-343.
  • Handle: RePEc:eee:ecmode:v:31:y:2013:i:c:p:335-343
    DOI: 10.1016/j.econmod.2012.11.030
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    Cited by:

    1. Cucos Paula – Roxana, 2016. "The Effects Of Foreign Direct Investment On The Economies Of Central And Eastern Europe Countries," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 4, pages 200-207, August.
    2. repec:eee:ecmode:v:72:y:2018:i:c:p:296-305 is not listed on IDEAS
    3. Anwar, Sajid & Sun, Sizhong, 2014. "Heterogeneity and curvilinearity of FDI-related productivity spillovers in China's manufacturing sector," Economic Modelling, Elsevier, vol. 41(C), pages 23-32.
    4. Adams, Samuel & Opoku, Eric Evans Osei, 2015. "Foreign direct investment, regulations and growth in sub-Saharan Africa," Economic Analysis and Policy, Elsevier, vol. 47(C), pages 48-56.
    5. repec:gam:jecomi:v:6:y:2018:i:1:p:18-:d:136954 is not listed on IDEAS
    6. Völlmecke, Dominik & Jindra, Björn & Marek, Philipp, 2016. "FDI, human capital and income convergence—Evidence for European regions," Economic Systems, Elsevier, vol. 40(2), pages 288-307.
    7. Rudra P. Pradhan, Mak B. Arvin, & Mahendhiran Nair, Jay Mittal, & Neville R. Norman, 2017. "Telecommunications infrastructure and usage and the FDI–growth nexus: evidence from Asian-21 countries "Abstract: This paper examines causal relationships between telecommunications infrastructur," Department of Economics - Working Papers Series 2032, The University of Melbourne.
    8. Luh, Yir-Hueih & Jiang, Wun-Ji & Huang, Szu-Chi, 2016. "Trade-related spillovers and industrial competitiveness: Exploring the linkages for OECD countries," Economic Modelling, Elsevier, vol. 54(C), pages 309-325.
    9. Gunby, Philip & Jin, Yinghua & Robert Reed, W., 2017. "Did FDI Really Cause Chinese Economic Growth? A Meta-Analysis," World Development, Elsevier, vol. 90(C), pages 242-255.
    10. Ahmed, Mumtaz & Riaz, Khalid & Maqbool Khan, Atif & Bibi, Salma, 2015. "Energy consumption–economic growth nexus for Pakistan: Taming the untamed," Renewable and Sustainable Energy Reviews, Elsevier, vol. 52(C), pages 890-896.
    11. Jun, Sangjoon, 2015. "The Nexus between FDI and Growth in the SAARC Member Countries," East Asian Economic Review, Korea Institute for International Economic Policy, vol. 19(1), pages 39-70, March.
    12. Shujing Yue & Yang Yang & Yaoyu Hu, 2016. "Does Foreign Direct Investment Affect Green Growth? Evidence from China’s Experience," Sustainability, MDPI, Open Access Journal, vol. 8(2), pages 1-14, February.

    More about this item

    Keywords

    FDI; Economic growth; China; Bootstrap;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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