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Expectations and the Dynamic Feedback between Foreign Direct Investment and Economic Growth

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  • Diego Escobari
  • Diego E. Vacaflores

Abstract

This paper seeks to analyze the dynamic feedback between Foreign Direct Investment (FDI) and economic growth - larger FDI promotes higher GDP, while higher GDP can be achieved with higher levels of FDI. We use panels and a sample of 19 Latin American countries to estimate a dynamic FDI and a dynamic GDP equation that jointly characterize the evolution of both variables. We find that the dynamics of GDP and FDI are mostly driven by the expectations. Shocks of GDP or FDI were found to play no role affecting the dynamics.

Suggested Citation

  • Diego Escobari & Diego E. Vacaflores, 2015. "Expectations and the Dynamic Feedback between Foreign Direct Investment and Economic Growth," International Economic Journal, Taylor & Francis Journals, vol. 29(1), pages 121-136, March.
  • Handle: RePEc:taf:intecj:v:29:y:2015:i:1:p:121-136 DOI: 10.1080/10168737.2014.966740
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    References listed on IDEAS

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    1. Diego Escobari, 2012. "Dynamic Pricing, Advance Sales and Aggregate Demand Learning in Airlines," Journal of Industrial Economics, Wiley Blackwell, vol. 60(4), pages 697-724, December.
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    5. Damijan, Joze P. & Knell, Mark & Majcen, Boris & Rojec, Matija, 2003. "The role of FDI, R&D accumulation and trade in transferring technology to transition countries: evidence from firm panel data for eight transition countries," Economic Systems, Elsevier, vol. 27(2), pages 189-204, June.
    6. 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, pages 89-112.
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    9. Escobari Diego & Mollick André Varella, 2013. "Output growth and unexpected government expenditures," The B.E. Journal of Macroeconomics, De Gruyter, pages 1-33.
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    17. Escobari Diego & Mollick André Varella, 2013. "Output growth and unexpected government expenditures," The B.E. Journal of Macroeconomics, De Gruyter, pages 1-33.
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    More about this item

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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