Foreign Direct Investment Response to Economic Growth Shocks: Evidence from a VAR Estimation on a Panel Dataset

Tuyen Tran, Ha Van and Tinh Doan
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Ha Van: School of Business and Management, RMIT International University, Vietnam
Tinh Doan: Vietnam National University, Hanoi, Vietnam

Economic Alternatives, 2024, issue 1, 18-31

Abstract: This paper examines the relationship between inward foreign direct investment (IFDI) and economic growth in OECD and ASEAN, China and Hong Kong (East Asia) over the past 35 years (1985-2019). Our estimates using vector autoregression on a panel dataset show that the mutually causal relationship between IFDI inflows and economic growth exists in both the advanced and emerging countries. However, the relationship appears to be stronger in the OECD economies than in the East Asian economies, and IFDI is more responsive to economic growth in the OECD countries. The results from impulse response functions also indicate that a shock in economic growth leads to a change in the IFDI inflows into OECD countries while there is no strong evidence in ASEAN, China and Hong Kong.

Keywords: foreign direct investment; economic growth; PVAR; impulse response functions OECD; East Asia (search for similar items in EconPapers)
JEL-codes: F21 F23 F43 O11 (search for similar items in EconPapers)
Date: 2024
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