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

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  • Liangshu Qi

Abstract

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.

Suggested Citation

  • Liangshu Qi, 2007. "The Relationship Between Growth, Total Investment and Inward FDI: Evidence from Time Series Data," International Review of Applied Economics, Taylor & Francis Journals, vol. 21(1), pages 119-133.
  • Handle: RePEc:taf:irapec:v:21:y:2007:i:1:p:119-133 DOI: 10.1080/02692170601035058
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    References listed on IDEAS

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    1. 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 133-151, January.
    2. V N Balasubramanyam & D Sapsford & M A Salisu, "undated". "Foreign Direct Investment and Growth," Working Papers ec13/94, Department of Economics, University of Lancaster.
    3. Robert B. Barsky & J. Bradford De Long, 1991. "Forecasting Pre-World War I Inflation: The Fisher Effect and the Gold Standard," The Quarterly Journal of Economics, Oxford University Press, pages 815-836.
    4. Magnus Blomström & Robert E. Lipsey & Mario Zejan, 1996. "Is Fixed Investment the Key to Economic Growth?," The Quarterly Journal of Economics, Oxford University Press, pages 269-276.
    5. J. Bradford De Long & Lawrence H. Summers, 1991. "Equipment Investment and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 445-502.
    6. 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 883-896, July.
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    Cited by:

    1. Odili Okwuchukwu, 2015. "Exchange Rate Volatility, Stock Market Performance and Foreign Direct Investment in Nigeria," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 5(2), pages 172-184, April.
    2. K Jackson & W Zang, 2015. "Evaluating Methodological Issues in the Tourism Literature: UK outgoing tourism and trade links," Economic Issues Journal Articles, Economic Issues, vol. 20(1), pages 1-42, March.
    3. Lee, Jung Wan, 2013. "The contribution of foreign direct investment to clean energy use, carbon emissions and economic growth," Energy Policy, Elsevier, vol. 55(C), pages 483-489.
    4. Chen, George S. & Yao, Yao & Malizard, Julien, 2017. "Does foreign direct investment crowd in or crowd out private domestic investment in China? The effect of entry mode," Economic Modelling, Elsevier, vol. 61(C), pages 409-419.
    5. repec:spr:manint:v:49:y:2009:i:5:d:10.1007_s11575-009-0007-6 is not listed on IDEAS

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    Keywords

    Growth; capital investment; FDI; causal relationship;

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