ScholarLens Back to search
2004•RePEc: Research Papers in EconomicsOpen access

On the Causal Links between FDI and Growth in Developing Countries

Henrik Steen Hansen, John Rand

Open full text 39 citations

Abstract

We analyse the Granger-causal relationships between foreign direct investment (FDI) and GDP in a sample of 31 developing countries covering the period 1970-2000. Using estimators for heterogeneous panel data we find bi-directional causality between the FDI/GDP ratio and the level of GDP. FDI is found to have a lasting impact on the level of GDP, while GDP has no long run impact on the FDI/GDP ratio. In that sense FDI causes growth. Furthermore, in a model for GDP and FDI as a fraction of gross capital formation (GCF) we also find long run effects of shifts in the mean level of FDI/GCF. We interpret this finding as evidence in favour of the hypotheses that FDI has an impact on GDP via knowledge transfers and adoption of new technology.

Open-access reader

About this research paper

What this paper is about

We analyse the Granger-causal relationships between foreign direct investment (FDI) and GDP in a sample of 31 developing countries covering the period 1970-2000. Using estimators for heterogeneous panel data we find bi-directional causality between the FDI/GDP ratio and the level of GDP. FDI is found to have a lasting impact on the level of GDP, while GDP has no long run impact on the FDI/GDP ratio. In that sense FDI causes growth. Furthermore, in a model for GDP and FDI as a fraction of gross capital formation (GCF) we also find long run effects of shifts in the mean level of FDI/GCF. We interpret this finding as evidence in favour of the hypotheses that FDI has an impact on GDP via knowledge transfers and adoption of new technology.

Why it matters

OpenAlex reports 39 citations for this work. Citation counts describe recorded attention and do not establish research quality.

Key contribution

A contribution statement is not available in the OpenAlex record.

Method / approach

Method details are not available in the OpenAlex metadata.

Main findings

Findings are not separately available in the OpenAlex metadata.

Limitations

Limitations are not available in the OpenAlex metadata.

Applications

Application details are not available in the OpenAlex metadata.

Available abstract

We analyse the Granger-causal relationships between foreign direct investment (FDI) and GDP in a sample of 31 developing countries covering the period 1970-2000. Using estimators for heterogeneous panel data we find bi-directional causality between the FDI/GDP ratio and the level of GDP. FDI is found to have a lasting impact on the level of GDP, while GDP has no long run impact on the FDI/GDP ratio. In that sense FDI causes growth. Furthermore, in a model for GDP and FDI as a fraction of gross capital formation (GCF) we also find long run effects of shifts in the mean level of FDI/GCF. We interpret this finding as evidence in favour of the hypotheses that FDI has an impact on GDP via knowledge transfers and adoption of new technology.

Key concepts: Foreign direct investment, Economics, Granger causality, Monetary economics, Panel data, Causality (physics), Real gross domestic product, Gross domestic product

Related papers

Related paper 1Related paper 2Related paper 3
Back to paper searchBrowse research topicsOriginal source
On the Causal Links between FDI and Growth in Developing Countries — Research Paper | ScholarLens