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Short and long-run linear and nonlinear causality between FDI and GDP for the US

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  • Ilias A. Makris
  • Stavros Stavroyiannis

Abstract

Recent severe recessions demonstrated an urgent need for identifying and forecasting on the impact of specific macroeconomic indicators such as investment spending which is crucial for growth. Many researchers focus on the contribution of foreign investment (FDI) in recipient economies; however, findings are not clear, on whether the relation is bi-directional or not. That is, whether FDI affects growth, or it is growth that attracts FDI. The purpose of this work is to examine the direction of short and long-run causality of quarterly data of the US gross domestic product (GDP), and the rest of the world, foreign direct investments (FDI) in the US. A well-specified vector error correction model (VECM) identifies a unidirectional short and long-run causality from FDI to GDP. Furthermore, the use of the non-parametric Diks and Panchenko (2006) nonlinear causality test shows a unidirectional short and long-run nonlinear in nature remaining causality from FDI to GDP.

Suggested Citation

  • Ilias A. Makris & Stavros Stavroyiannis, 2019. "Short and long-run linear and nonlinear causality between FDI and GDP for the US," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 18(4), pages 466-479.
    • Handle: RePEc:ids:ijecbr:v:18:y:2019:i:4:p:466-479
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    Cited by:

    1. Michael Takudzwa Pasara & Rufaro Garidzirai, 2020. "Causality Effects among Gross Capital Formation, Unemployment and Economic Growth in South Africa," Economies, MDPI, vol. 8(2), pages 1-12, April.

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