The Causal Links Between FDI and Economic Development: Evidence from Greece
Vol. 27 No.1 (2011), pp. 12-20/European Journal of Social Sciences
9 Pages Posted: 21 May 2012 Last revised: 18 Nov 2020
Date Written: May 20, 2012
This paper investigates the causal relationship between economic development as measured by GDP per capita and foreign direct investment for an EU and EMU member country, Greece, by applying cointegration tests and Granger causality analysis, during the period 1970-2009. Robust empirical findings drawn from the Johansen cointegration analysis suggest the existence of a long-run equilibrium relationship. Furthermore, Granger causality test indicates that there is no bi-directional causal links on the FDI – GDP relationship. However, there is a one-way causality running from GDP to FDI, as results for the one and two year lags imply, strongly indicating that foreign capital penetration Granger-causes economic growth in Greece. Hence, adequate tax incentives, infrastructure quality and promotion of the human capital base, could guarantee inflow of foreign funds in the future, as evidence imply for the case of Greece.
Keywords: Cointegration, Granger Causality, Foreign Direct Investment, Economy of Greece
JEL Classification: C22, F21, O47
Suggested Citation: Suggested Citation