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The Relationship Between Growth, Total Investment and Inward FDI: Evidence from Time Series Data

  • Liangshu Qi
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    This paper explores the causal relationship between growth, total investment and inward FDI in 47 countries. Using error-correction model, the significance, direction and sign of long-run and short-run causal effects between GDP, capital stock and FDI stock are investigated. The miscellaneous results echo the divergent theoretical viewpoints and the mixed empirical results of previous works. However, the evidence found in this study suggests that there are differences in growth mechanism between developed and developing countries, between various developing regions, and between oil-exporting and non-oil-exporting countries. The main policy implication is that capital investment is essential for growth while FDI's effect is uncertain in developing countries. FDI as well as total investment enhances growth only under some conditions.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/02692170601035058
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    Article provided by Taylor & Francis Journals in its journal International Review of Applied Economics.

    Volume (Year): 21 (2007)
    Issue (Month): 1 ()
    Pages: 119-133

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    Handle: RePEc:taf:irapec:v:21:y:2007:i:1:p:119-133
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    1. Magnus Blomstrom & Robert E. Lipsey & Mario Zejan, 1993. "Is Fixed Investment the Key to Economic Growth?," NBER Working Papers 4436, National Bureau of Economic Research, Inc.
    2. de Mello, Luiz R, Jr, 1999. "Foreign Direct Investment-Led Growth: Evidence from Time Series and Panel Data," Oxford Economic Papers, Oxford University Press, vol. 51(1), pages 133-51, January.
    3. V N Balasubramanyam & D Sapsford & M A Salisu, . "Foreign Direct Investment and Growth," Working Papers ec13/94, Department of Economics, University of Lancaster.
    4. Hsiao, Cheng & Shen, Yan, 2003. "Foreign Direct Investment and Economic Growth: The Importance of Institutions and Urbanization," Economic Development and Cultural Change, University of Chicago Press, vol. 51(4), pages 883-96, July.
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