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The Impact of Foreign Direct Investment on Economic Growth : A Case Study of Ireland

Author

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  • Kyuntae Kim

    (Korea Institute for International Economic Policy)

  • Hokyung Bang

Abstract

This study examines the long-run and the short-run relationships between foreign direct investment and economic growth in Ireland. Using an augmented aggregate production function growth model, we applied the bounds testing approach to cointegration, which is more appropriate for estimating small sample studies. The data span for the study is from 1975 to 2006. The results indicate that foreign capital (FDI), domestic capital, and trade are statistically significant in both the long-run and the short-run, having positive effects on economic growth in Ireland. The causality analysis also suggests that there is a bi-directional Granger causality between GDP and FDI, and thus, we conclude that the FDI-led growth hypothesis is valid for the Irish economy.

Suggested Citation

  • Kyuntae Kim & Hokyung Bang, 2008. "The Impact of Foreign Direct Investment on Economic Growth : A Case Study of Ireland," Development Economics Working Papers 22993, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:develo:22993
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    File URL: http://www.eaber.org/node/22993
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    References listed on IDEAS

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    1. Barry, Frank & Bradley, John, 1997. "FDI and Trade: The Irish Host-Country Experience," Economic Journal, Royal Economic Society, vol. 107(445), pages 1798-1811, November.
    2. Balasubramanyam, V N & Salisu, M & Sapsford, David, 1996. "Foreign Direct Investment and Growth in EP and IS Countries," Economic Journal, Royal Economic Society, vol. 106(434), pages 92-105, January.
    3. Frimpong, Joseph Magnus & Oteng-Abayie, Eric Fosu, 2006. "Bounds testing approach: an examination of foreign direct investment, trade, and growth relationships," MPRA Paper 352, University Library of Munich, Germany, revised 09 Oct 2006.
    4. Salvador Barrios & Holger Görg & Eric Strobl, 2016. "Foreign direct investment, competition and industrial development in the host country," World Scientific Book Chapters,in: MULTINATIONAL ENTERPRISES AND HOST COUNTRY DEVELOPMENT, chapter 18, pages 323-346 World Scientific Publishing Co. Pte. Ltd..
    5. Khan, Saleem M., 2006. "T.H. Moran, E.M. Grahm and M. Blomstrom, Editors, Does Foreign Direct Investment Promote Development?, Institute for International Economics, Washington, DC (April 2005).T. Ito and A.D. Kruger, Editor," Journal of Asian Economics, Elsevier, vol. 17(6), pages 1128-1130, December.
    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, vol. 64(1), pages 89-112, October.
    7. Theodore H. Moran & Edward M. Graham & Magnus Blomstrom, 2005. "Does Foreign Direct Investment Promote Development?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 3810.
    8. Bruce A. Blonigen & Miao Wang, 2004. "Inappropriate Pooling of Wealthy and Poor Countries in Empirical FDI Studies," NBER Working Papers 10378, National Bureau of Economic Research, Inc.
    9. Nair-Reichert, Usha & Weinhold, Diana, 2001. " Causality Tests for Cross-Country Panels: A New Look at FDI and Economic Growth in Developing Countries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 63(2), pages 153-171, May.
    10. Frances Ruane & Ali Uğur, 2005. "Foreign direct investment and productivity spillovers in Irish manufacturing industry: evidence from plant level panel data," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 12(1), pages 53-66.
    11. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
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    Cited by:

    1. Fambon, Samuel, 2013. "Foreign Capital Inflow and Economic Growth in Cameroon," WIDER Working Paper Series 124, World Institute for Development Economic Research (UNU-WIDER).
    2. Frank Adusah-Poku, 2016. "Which Form of Foreign Capital Inflows Enhance Economic Growth? Empirical Evidence in Sub-Saharan Africa," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 6(10), pages 557-570, October.

    More about this item

    Keywords

    FDI; Ireland; Cointegration; Unit Roots; Bounds Test; Error Correction Models; Granger Causality;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F10 - International Economics - - Trade - - - General
    • C00 - Mathematical and Quantitative Methods - - General - - - General

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