On the Causal Links between FDI and Growth in Developing Countries

Henrik Hansen and John Rand

No 04-30, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: We analyse the Granger-causal relationships between foreign direct investment (FDI) and GDP in a sample of 31 developing countries covering the period 1970-2000. Using estimators for heterogeneous panel data we find bi-directional causality between the FDI/GDP ratio and the level of GDP. FDI is found to have a lasting impact on the level of GDP, while GDP has no long run impact on the FDI/GDP ratio. In that sense FDI causes growth. Furthermore, in a model for GDP and FDI as a fraction of gross capital formation (GCF) we also find long run effects of shifts in the mean level of FDI/GCF. We interpret this finding as evidence in favour of the hypotheses that FDI has an impact on GDP via knowledge transfers and adoption of new technology.

Keywords: economic growth; foreign direct investment; Granger causality; panel data (search for similar items in EconPapers)
JEL-codes: C33 F21 O4 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2004-12
New Economics Papers: this item is included in nep-afr, nep-dev, nep-ifn and nep-sea
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Citations: View citations in EconPapers (22)

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Related works:
Journal Article: On the Causal Links Between FDI and Growth in Developing Countries (2006)
Working Paper: On the Causal Links between FDI and Growth in Developing Countries (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:kud:kuiedp:0430

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