Evidence for Gross Domestic Product growth time delay dependence over Foreign Direct Investment. A time-lag dependent correlation study

Marcel Ausloos, Ali Eskandary, Parmjit Kaur and Gurjeet Dhesi

Physica A: Statistical Mechanics and its Applications, 2019, vol. 527, issue C

Abstract: This paper considers an often forgotten relationship, the time delay between a cause and its effect in economies and finance. We treat the case of Foreign Direct Investment (FDI) and economic growth, - measured through a country Gross Domestic Product (GDP). The pertinent data refers to 43 countries, over 1970–2015, - for a total of 4278 observations. When countries are grouped according to the Inequality-Adjusted Human Development Index (IHDI), it is found that a time lag dependence effect exists in FDI–GDP correlations. This is established through a time-dependent Pearson ’s product-moment correlation coefficient matrix. Moreover, such a Pearson correlation coefficient is observed to evolve from positive to negative values depending on the IHDI, from low to high. It is “politically and policy relevant” that the correlation is statistically significant providing the time lag is less than 3 years. A “rank-size” law is demonstrated. It is recommended to reconsider such a time lag effect when discussing previous analyses whence conclusions on international business, and thereafter on forecasting.

Keywords: Foreign Direct Investment; Inequality-Adjusted Human Development Index; Pearson’s product-moment correlation coefficient matrix; Time lag econometrics; Economic growth (GDP) (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:527:y:2019:i:c:s0378437119307125

DOI: 10.1016/j.physa.2019.121181

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