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The Intertemporal Causal Dynamics Between Fixed Capital Formation and Economic Growth in The Group-Of-Seven Countries

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  • Khalifa Ghali
  • Al-Mutawa Ahmed

Abstract

The debate between De Long and Summers (1991, 1992) and Blomstrom, Lipsey and Zejan (1996) who reported conflicting results on the relationship between fixed capital formation and economic growth raised doubts on whether changes in a country's capital formation shares in GDP have an influence on its future growth rates. This paper addresses the issue again by examining the causal patterns between the share of fixed investment in GDP and the growth rate of per capital real GDP on an individual country basis, using time series on each of the group-of-seven countries. The empirical results suggest that the causal relationship between these variables may vary significantly across the major industrialized countries that presumably belong to the same growth group. Most importantly, no consistent evidence is found that causality is running in only one direction. Rather, causality between fixed investment and growth seems to have a country-specific nature and may run in either directions.

Suggested Citation

  • Khalifa Ghali & Al-Mutawa Ahmed, 1999. "The Intertemporal Causal Dynamics Between Fixed Capital Formation and Economic Growth in The Group-Of-Seven Countries," International Economic Journal, Taylor & Francis Journals, vol. 13(2), pages 31-37.
  • Handle: RePEc:taf:intecj:v:13:y:1999:i:2:p:31-37
    DOI: 10.1080/10168739900000035
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    References listed on IDEAS

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    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Peter C.B. Phillips & Pierre Perron, 1986. "Testing for a Unit Root in Time Series Regression," Cowles Foundation Discussion Papers 795R, Cowles Foundation for Research in Economics, Yale University, revised Sep 1987.
    3. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 407-443.
    4. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 71-102, October.
    5. David Cass, 1964. "Optimum Economic Growth in an Aggregative Model of Capital Accumulation: A Turnpike Theorem," Cowles Foundation Discussion Papers 178, Cowles Foundation for Research in Economics, Yale University.
    6. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
    7. Magnus Blomström & Robert E. Lipsey & Mario Zejan, 1996. "Is Fixed Investment the Key to Economic Growth?," The Quarterly Journal of Economics, Oxford University Press, vol. 111(1), pages 269-276.
    8. Baumol, William J, 1986. "Productivity Growth, Convergence, and Welfare: What the Long-run Data Show," American Economic Review, American Economic Association, vol. 76(5), pages 1072-1085, December.
    9. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
    10. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-963, September.
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    Cited by:

    1. Shahbaz, Muhammad & Mutascu, Mihai & Tiwari, Aviral Kumar, 2012. "Revisiting the Relationship between Electricity Consumption, Capital and Economic Growth: Cointegration and Causality Analysis in Romania," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 97-120, September.
    2. repec:gam:jecomi:v:6:y:2018:i:1:p:18-:d:136954 is not listed on IDEAS
    3. Fauzi HUSSIN & Norazrul Mat ROS & Mohd Saifoul Zamzuri NOOR, 2013. "Determinants of Economic Growth in Malaysia 1970-2010," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 3(9), pages 1140-1151, September.

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