Subscribe

Subscribe to our Newsletter and get informed about new publication regulary and special discounts for subscribers!

ILSHS > Volume 14 > Dynamic Causal Relationships among GDP, Exports,...
< Back to Volume

Dynamic Causal Relationships among GDP, Exports, and Foreign Direct Investment (FDI) in the Developing Countries

Full Text PDF

Abstract:

Using panel techniques, this paper estimates the causality among economic growth, exports, and Foreign Direct Investment (FDI) inflows for developing countries over the period of 1980 to 2008. The study indicates that; firstly, there is strong evidence of bidirectional causality between economic growth and FDI inflows. Secondly, the exports-led growth hypothesis is supported by the finding of unidirectional causality running from exports to economic growth in both the short-run and the long-run. Thirdly, export is not Granger caused by economic growth and FDI inflow in either the short run or the long run. On the basis of the obtained results, it is recommended that outward-oriented strategies and policies of attracting FDI be pursued by developing countries to achieve higher rates of economic growth. On the other hand, the countries can increase FDI inflows by stimulating their economic growth.

Info:

Periodical:
International Letters of Social and Humanistic Sciences (Volume 14)
Pages:
1-19
Citation:
M. Mehrara et al., "Dynamic Causal Relationships among GDP, Exports, and Foreign Direct Investment (FDI) in the Developing Countries", International Letters of Social and Humanistic Sciences, Vol. 14, pp. 1-19, 2014
Online since:
October 2013
Export:
Distribution:
References:

Aitken, B., G. H. Hanson, et al., 1997. Spillovers, Foreign Investment, and Export Behavior., Journal of International Economics 43, pp.103-132.

Aizenman, J. and I. Noy, 2006. FDI and tradeTwo-way linkages?, The Quarterly Review of Economics and Finance 46(3): 317-337.

Alguacil, M., A. Cuadros, et al., 2002. Foreign direct investment, exports and Domestic Performance in Mexico: a causality analysis., Economics Letters 77(3), pp.371-376.

Arellano, M. and O. Bover, 1995. Another Look at the Instrumental-Variable Estimation of Error Components Models., Journal of Econometrics 58, pp.29-52.

Arellano, M. and B. Stephen, 1991. Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application of Employment Equations., Review of Economic Studies 58, pp.277-297.

Asafu-Adjaye, J., 2000. The Relationship Between Energy Consumption, Energy Prices and Economic Growth: Time Series Evidence from Asian Developing Countries., Energy Economics 22, pp.615-625.

Bahmani-Oskooee, M. and M. Oyolola, 2007. Export growth and output growth: an application of bounds testing approach", ., Journal of Economics and Finance 31, pp.1-11.

Balaguer, J. and M. Cantavella-Jorda, 2001. Examining the export-led growth hypothesis for Spain in the last century., Applied Economics Letters 8, pp.681-685.

Balassa, B., 1978. Exports and economic growth: further evidence., Journal of Development Economics 5, pp.181-189.

Balasubramanyam, V. N., M. Salisu, et al., 1996. Foreign Direct Investment and Growth in EP and IS Countries., The Economic Journal 106, pp.92-105.

Basu, P., C. Chakraborty, et al., 2003. Liberalization, FDI and Growth in Developing Countries: A Panel Cointegration Approach., Economic Inquiry 14(3), pp.510-516.

Biswal, B. and U. Dhawan, 1998. Export-led growth hypothesis: cointegration and causality analysis for Taiwan., Applied Economics Letters 5, pp.699-701.

Blomström, M. and A. Kokko, 1998. Multinational Corporations and Spillovers., Journal of Economic Surveys 12, pp.247-277.

Blundell, R. and S. Bond, 1998. Initial Conditions and Moment Restrictions in Dynamic Panel Data Models., Journal of Econometrics 87, pp.115-43.

Borensztein, E., J. De Gregorio, et al., 1998. How does foreign direct investment affect economic growth., Journal of International Economics 45, pp.115-135.

Borenztein, E., J. De Gregorio, et al., 1998. How does foreign direct investment affect economic growth., Journal of International Economics 45, pp.115-135.

Buffie, E., 1992. On the condition for export-led growth., Canadian Journal of Economics 25, pp.211-225.

Chakraborty, C. and P. Basu, 2002. Foreign direct investment and growth in India: A cointegration approach., Applied Economics 34(9), pp.1061-1073.

Choe, J. I., 2003. Do Foreign Direct Investment and Gross Domestic Investment Promote Economic Growth?, Review of Development Economics 7(1), pp.44-57.

Chowdhury, A. and G. Mavrotas, 2006. FDI and Growth: What Causes What? ., The World Economy 29(1), pp.9-19.

De Mello, L. R., 1999. Foreign direct investment-led growth: evidence from time series and panel data., Oxford Economic Papers (51), pp.133-151.

Dees, S., 1998. Foreign direct investment in China: determinants and effects, ., Economics of Planning 31(2-3), pp.175-194.

Ekanayake, E., R. Vogel, et al., 2003. Openness and Economic Growth: Empirical Evidence on The Relationship between Output, Inward FDI, and Trade., Journal of Business Strategies 20, pp.59-7.

Ekanayake, E. M., 1999. Exports and Economic Growth in Asian Developing Countries: Cointegration and Error-Correction Models., Journal of Economic Development 24(2), pp.43-56.

Ericsson, J. and M. Irandoust, 2001. On the Causality between Foreign Direct Investment and Output: a Comparative Study., The International Trade Journal 15 , pp.122-132.

Feder, G., 1982. On exports and economic growth., Journal of Development Economics 12, pp.59-73.

Granger, C. W. J., 1988. Some recent developments in a concept of causality., Journal of Econometrics 39, pp.199-211.

Hansen, H. and J. Rand, 2006. On the Causal Links between FDI and Growth in Developing Countries., World Economy 29(1), pp.21-41.

Herzer, D., S. Klasen, et al., 2006. In Search of FDI-Led Growth in Developing Countries., Ibero-America Institute for Economic Research Discussion Papers, No. 150, Goettingen, Germany.

Hsiao, C. and Y. Shen, 2003. Foreign direct investment and Economic growth: The importance of institutions and urbanization., Economic Development & Cultural Change 51(4), pp.124-132.

Hsiao, F. S. T. and M. -C. W. Hsiao, 2006. FDI, Exports and GDP in East and Southeast Asia - Panel Data Versus Time-Series Causality Analysis., Journal of Asian Economics 17, pp.1082-1106.

Im, K. S., M. H. Pesaran, et al., 2003. Testing for unit roots in heterogeneous panels., Journal of Econometrics 115(1), pp.53-74.

Islam, M., 1998. Export expansion and economic growth: testing for cointegration and causality., Applied Economics 30, pp.415-425.

Jun, K. W. and H. Singh, 1996. The Determinants of Foreign Direct Investment in Developing Countries., Transnational Corporations 5(2), pp.67-105.

Jung, W. S. and P. J. Marshall, 1985. Exports, Growth and Causality in Developing Countries., Journal of Development Economics 18, pp.1-12.

Kaldor, N., 1976. Strategic Factors in Economic Development., Cornell University Press, Ithaca, New York, USA.

Kohpaiboon, A., 2003. Foreign Trade Regimes and FDI Growth Nexus: A Case Study of Thailand., The Journal of Development Studies 40(2), pp.5-69.

Krugman, P. R., 1984. Import protection as export promotion. In Monopolistic Competition in International Trade., ed. H. Kierzkowski, Oxford: Oxford University Press.

Kudrle, R. T. and D. B. Bobrow, 1982. US policy toward Foreign Direct Invesment., World Politics 34(3), pp.353-79.

Lancaster, K., 1980. Intra-industry trade under perfect monopolistic competition., Journal of International Economics 10, pp.151-175.

Lean, H. H., 2008. The Impact of Foreign Direct Investment on the Growth of the Manufacturing Sector in Malaysia., International Applied Economics and Management Letters 1(1), pp.41-45.

Leichenko, R. M. and R. A. Erickson, 1997. Foreign Direct Investment and State Export Performance., Journal of Regional Science 37(2), pp.307-329.

Levin, A., C. Lin, et al., 2002. Unit Root Tests in Panel Data: Asymptotic and FiniteSample Properties., Journal of Econometrics 108: 1-24.

Li, X. and X. Liu, 2005. Foreign Direct Investment and Economic Growth: An Increasingly Endogenous Relationship., World Development 33(3), pp.393-407.

Liu, X., P. Burridge, et al., 2002. Relationships between economic growth, foreign direct investment and trade: evidence from China., Applied Economics 34, p.14331440.

Liu, X., S. Chang, et al., 2009. Trade, foregin direct investment and economic growth in asian countries., Applied Economics 41, pp.1603-1612.

Love, J. and R. Chandra, 2005. Testing Export-led Growth in South Asia, Journal of Economic Studies., 32, pp.132-145.

Lutz, S. and O. Talavera, 2004. Do Ukrainian firms benefit from FDI?, Economics of Planning 37, pp.77-98.

Mah, J. S., 2005. Export expansion, economic growth and causality in China., Applied Economics Letters 12, pp.105-107.

Makki, S. and A. Somwaru, 2004. Impact of Foreign Direct Investment and Trade on Economic Growth: Evidence from Developing Countries., AJAE 86, pp.795-801.

Markusen, J. R. and A. J. Venables, 1998. Multinational Firms and the New Trade Theory., Journal of International Economics 46, pp.183-204.

Masih, A. M. M. and R. Masih, 1997. On the Temporal Causal Relationship Between Energy Consumption, Real Income, and Prices: Some New Evidence From AsianEnergy Dependent Nics Based on A Multivariate Cointegration/Vector ErrorCorrection Approach., Journal of Policy Modeling 19(4), pp.417-440.

McKinnon, R., 1964. Foreign exchange constraints in economic development and efficient aid allocation., Economic Journal 74, pp.388-409.

Meier, K. J. and A. Hicklin, 2008. Employee Turnover and Organizational Performance: Testing a Hypothesis from Classical Public Administration., Journal of Public Administration Research and Theory 18(4), pp.573-590.

Nair-Reichert, U. and D. Weinhold, 2000. Causality Tests for Cross-Country Panels: New look at FDI and Economic Growth in Developing Countries., Oxford Bulletin of Economics and Statistics 64, pp.153-171.

Ng, S. and p. Perron, 2001. Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power., Econometrica 69, pp.1519-1554.

Pedroni, P., 1999. Critical values for cointegration tests in heterogeneous panels with multiple regressors., Oxford Bulletin of Economics and Statistics 61, pp.653-670.

Pedroni, P., 2000. Full modified OLS for heterogeneous cointegrated panels. Nonstationary Panels Panel Cointegration and Dynamic Panels., Advances in Econometrics 15. JAI Press.

Pedroni, P., 2001. Purchasing Power Parity Tests in Cointegrated Panels"., Review of Economics and Statistics 83, pp.727-731.

Pedroni, P. 2004. Panel Cointegration: Asymptotic and Finite Sample Properties of Pooled Time Series Tests with an Application to the PPP Hypothesis., Econometric Theory 20, pp.597-625.

Reppas, P. A. and D. K. Christopoulos, 2005. The export-output growth nexus: Evidence from African and Asian countries., Journal of Policy Modeling 27, p.929940.

Sargan, J. D., 1958. The estimation of economic relationships using instrumental variables., Econometrica 26, pp.397-415.

Shan, J. and F. Sun, 1998. On the export-led growth hypothesis: the econometric evidence from China., Applied Economics 30, pp.1055-1065.

Sharma, K., 2000. Export Growth in India: Has FDI Played a Role?, Center Discussion Paper, No. 816, Economic Growth Center, Yale University.

Toda, H. Y. and Yamamoto, 1995. Statistical inference in Vector Autoregressions with possibly integrated processes., Journal of Econometrics 66, pp.225-250.

Yamada, H. and H. Y. Toda, 1998. Inference in Possibly Integrated Vector. Autoregressive Models: Some Finite Sample Evidence., Journal of Econometrics 86, pp.55-95.

Zhang, K. H., 2001. Does Foreign Direct Investment Promote Economic Growth? Evidence form East Asia and Latin America., Contemporary Economic Policy 19(2), pp.175-185.

Zhang, Q. and B. Felmingham, 2001. The relationship between inward direct foreign investment and China's provincial export trade., China Economic Review 12(1), p.8299. ( Received 21 October 2013; accepted 25 October 2013 ).

Show More Hide