Estimating Relationships Among FDI Inflow, Domestic Capital, and Economic Growth Using the Threshold Error Correction Approach

Shu-Chen Chang

Emerging Markets Finance and Trade, 2010, vol. 46, issue 1, 6-15

Abstract: This paper investigates both long- and short-term relationships among foreign direct investment (FDI), domestic capital, and economic growth in Taiwan using the threshold error-correction approach. The results show a long-term equilibrium relationship among the three variables, which remains stable with asymmetric adjustments. Three short-term relationships are found: (1) promoting growth may stimulate domestic capital accumulation; (2) increasing FDI inflow may stimulate investment from domestic sources rather than crowd out the formation of capital; and (3) FDI inflows directly influence growth through stimulating domestic investment.

Keywords: asymmetric adjustment; economic growth; foreign direct investment; threshold error-correction model (search for similar items in EconPapers)
Date: 2010
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