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The Interactive Relationship between Economic Growth and Foreign Direct Investments (FDI): A VAR Analysis in Iran

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  • Monireh Rafat

    (Department of Economy, University of Isfahan, Isfahan, Iran.)

Abstract

The impact of FDI on economic growth is neither homogeneous, nor completely clarified. Due to accumulation of capital in the host economy, FDI is expected to encourage the incorporation of new inputs and technologies in the process of production. However, the impact of FDI on economic growth is not so shaped up in empirical studies. Accordingly, while some studies remarked a positive impact of FDI on economic growth, others showed a negative relationship between the two variables. In this paper, we will analyze absorb methods of foreign investment, effective factors in foreign direct investment (including economic, encouragement and protection, and natural and politic factors), and connection between foreign direct investment and growth. We carried out an analysis of vector autoregressive (VAR) type, so as to identify the relationship between FDI and economic growth in Iran over the period 1991–2014. Result shows that economic growth and foreign direct investment have a positive impact on each other; hence there is a reciprocal relationship between them. Also, Granger causality test for GDP growth and foreign direct investment indicate that a reciprocal relationship exists between these two variables.

Suggested Citation

  • Monireh Rafat, 2018. "The Interactive Relationship between Economic Growth and Foreign Direct Investments (FDI): A VAR Analysis in Iran," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 22(1), pages 163-185, Winter.
    • Handle: RePEc:eut:journl:v:22:y:2018:i:1:p:163
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    References listed on IDEAS

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    2. Sunde, Tafirenyika, 2022. "The impact of foreign direct investment on Namibia’s economic growth: A time series investigation," MPRA Paper 117366, University Library of Munich, Germany, revised 03 May 2023.
    3. Faisal, Faisal & Rahman, Sami Ur & Chander, Rajnesh & Ali, Adnan & Ramakrishnan, Suresh & Ozatac, Nesrin & Ullah, Mr Noor & Tursoy, Turgut, 2021. "Investigating the nexus between GDP, oil prices, FDI, and tourism for emerging economy: Empirical evidence from the novel fourier ARDL and hidden cointegration," Resources Policy, Elsevier, vol. 74(C).
    4. Zahra Zarepour, 2022. "Short- and long-run macroeconomic impacts of the 2010 Iranian energy subsidy reform," SN Business & Economics, Springer, vol. 2(10), pages 1-32, October.
    5. Jaka Sriyana, 2019. "Dynamic Effects of Energy Consumption on Economic Growth in an Emerging Economy," International Journal of Energy Economics and Policy, Econjournals, vol. 9(4), pages 283-290.

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