FDI and Growth: What Causes What?

11 Pages Posted: 23 Mar 2006

See all articles by Abdur Chowdhury

Abdur Chowdhury

Marquette University - Department of Economics; United Nations - Economic Commission for Europe

George Mavrotas

United Nations - World Institute for Development Economics Research (UNU/WIDER)

Abstract

This paper examines the causal relationship between FDI and economic growth by using an innovative econometric methodology to study the direction of causality between the two variables. We apply our methodology, based on the Toda-Yamamoto test for causality, to time-series data covering the period 1969-2000 for three developing countries, namely Chile, Malaysia and Thailand, all of them major recipients of FDI with a different history of macroeconomic episodes, policy regimes and growth patterns. Our empirical findings clearly suggest that it is GDP that causes FDI in the case of Chile and not vice versa, while for both Malaysia and Thailand, there is a strong evidence of a bi-directional causality between the two variables. The robustness of the above findings is confirmed by the use of a bootstrap test employed to test the validity of our results.

Suggested Citation

Chowdhury, Abdur and Mavrotas, George, FDI and Growth: What Causes What?. The World Economy, Vol. 29, No. 1, pp. 9-19, January 2006. Available at SSRN: https://ssrn.com/abstract=875102 or http://dx.doi.org/10.1111/j.1467-9701.2006.00755.x

Abdur Chowdhury (Contact Author)

Marquette University - Department of Economics ( email )

P.O. Box 1881
Milwaukee, WI 53201-1881
United States

United Nations - Economic Commission for Europe ( email )

Palais des Nations
Geneva
Switzerland

George Mavrotas

United Nations - World Institute for Development Economics Research (UNU/WIDER) ( email )

Katajanokanlaituri 6B
Helsinki, FIN-00160
Finland

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