Panel Causality Analysis on FDI–Exports–Economic Growth Nexus in First and Second Generation ANIEs

This chapter continues from Chapter 3. Based on the previous results, we explore whether there are different causality relations among the three growth factors due to different stages of economic development. Specifically, using panel data from 1981 to 2005, we examine the Granger causality relations among exports, FDI, and GDP (TIG) in the three first generation Asian newly industrializing economies (ANIEs): Korea, Taiwan, and Singapore, in addition to the four second generation ANIEs: Malaysia, the Philippines, Thailand, and China. After reviewing the current literature, we construct three-variable panel vector autoregression (VAR) models for the first generation ANIEs, the second generation ANIEs, and finally, all seven economies as a group. We then use the fixed effects model to estimate the panel VAR equations for Granger causality tests. The panel data causality results reveal that there are bidirectional causality relations among all three variables for the three first generation ANIEs, but only statistically weak bidirectional causality exists between exports and GDP for the four second generation ANIEs. However, when all seven ANIEs are grouped for panel data analysis, we find that FDI has unidirectional effects on the GDP directly and also indirectly through exports. We also find that exports cause GDP, and there is a bidirectional causality between exports and GDP for the group. Economic and policy implications of our analyses for promoting economic development are then explored in the conclusions.