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The Causality of Foreign Direct Investment and Its Effects on Economic Growth: Re-estimated by a Directed Graph Approach

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  • Li, Yarui
  • Woodard, Joshua D.
  • Leatham, David J.

Abstract

This paper uses the directed acyclic graph approach to analyze the causal patterns among foreign direct investment and other economic, social, and political variables, including GDP per capita as a proxy for economic growth. We find that economic growth causes FDI inflows for developing countries, while FDI induces economic growth for developed countries. Also, stock market is found to be an intermediary that amplifies the influence on FDI from many causal variables of FDI.

Suggested Citation

  • Li, Yarui & Woodard, Joshua D. & Leatham, David J., 2011. "The Causality of Foreign Direct Investment and Its Effects on Economic Growth: Re-estimated by a Directed Graph Approach," 2011 Annual Meeting, February 5-8, 2011, Corpus Christi, Texas 98791, Southern Agricultural Economics Association.
    • Handle: RePEc:ags:saea11:98791
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    References listed on IDEAS

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    1. Koen De Backer & Leo Sleuwaegen, 2003. "Does Foreign Direct Investment Crowd Out Domestic Entrepreneurship?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 22(1), pages 67-84, February.
    2. Abdur Chowdhury & George Mavrotas, 2006. "FDI and Growth: What Causes What?," The World Economy, Wiley Blackwell, vol. 29(1), pages 9-19, January.
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    Keywords

    FDI; economic growth; DAG; Financial Economics;

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