Does OFDI Affect Economic Growth? Evidence from Cross-Country Regression and Time Series Analysis
25 Pages Posted: 4 Jun 2015 Last revised: 4 Aug 2016
Date Written: May 28, 2015
Abstract
The purpose of this study is to examine the impact of Outward Foreign Direct Investment (OFDI) on economic growth. Two econometric approaches are applied: cross-country regression for the sample of the selected ASEAN countries and a time series approach for China. Both approaches suggest that OFDI has a negative impact on economic growth. Several specifications and estimations techniques confirm that our findings are robust. In addition, the Granger causality test indicates unilateral causality from OFDI to GDP. Thus, the result specifies that increasing investment abroad decrease domestic growth. Most of the previous studies primarily focused on production, employment and exports in relation with outward investment on a firm level. This paper, in contrast, focuses on the aggregate impact of outward investment on economic growth of selected ASEAN countries. This analysis covers a period of more than three decades.
Keywords: ASEAN, China, Economic Growth, OFDI
JEL Classification: F21, F43, O47, O53, O57
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