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Foreign direct investment and economic growth in less developed countries: an empirical study of causality and mechanisms

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  • Mousumi Duttaray
  • Amitava Dutt
  • Kajal Mukhopadhyay

Abstract

We examine the causality between foreign direct investment (FDI) and economic growth for 66 developing countries, taking into account their interaction with exports and technological change. Time series analysis for each country is conducted, based on a method introduced by Toda and Yamamoto (1995) for testing Granger causality in the presence of nonstationary time series. The main findings of this article are: FDI causes growth in several of the developing countries, but the mechanism through which this works differs across countries and reverse causality from growth to FDI exists for many countries.

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  • Mousumi Duttaray & Amitava Dutt & Kajal Mukhopadhyay, 2008. "Foreign direct investment and economic growth in less developed countries: an empirical study of causality and mechanisms," Applied Economics, Taylor & Francis Journals, vol. 40(15), pages 1927-1939.
    • Handle: RePEc:taf:applec:v:40:y:2008:i:15:p:1927-1939
    DOI: 10.1080/00036840600949231
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    References listed on IDEAS

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    1. Singh, Harinder & Kwang W. Jun, 1995. "Some new evidence on determinants of foreign direct investment in developing countries," Policy Research Working Paper Series 1531, The World Bank.
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    Cited by:

    1. Thomas Jobert & Fatih Karanfil & Anna Tykhonenko, 2012. "Trade and Environment: Further Empirical Evidence from Heterogeneous Panels Using Aggregate Data," GREDEG Working Papers 2012-15, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    2. N.M. Odhiambo, 2021. "Foreign Direct Investment and Economic Growth in Kenya: An Empirical Investigation," Working Papers AESRI-2021-04, African Economic and Social Research Institute (AESRI), revised Jan 2021.
    3. Nicholas M. Odhiambo, 2022. "Foreign Direct Investment and Economic Growth in Kenya: An Empirical Investigation," International Journal of Public Administration, Taylor & Francis Journals, vol. 45(8), pages 620-631, June.
    4. Mah Jai S, 2017. "Globalization and Aid Inflows in the Economic Growth of Vietnam," Global Economy Journal, De Gruyter, vol. 17(2), pages 1-8, June.
    5. Dukata Radoja, 2017. "The Importance of Professional Training for Establishing Psychological Health Workers," European Journal of Multidisciplinary Studies Articles, Revistia Research and Publishing, vol. 2, ejms_v2_i.
    6. Magazzino, Cosimo & Mele, Marco, 2022. "Can a change in FDI accelerate GDP growth? Time-series and ANNs evidence on Malta," The Journal of Economic Asymmetries, Elsevier, vol. 25(C).
    7. Jai S. Mah, 2017. "Globalization And Economic Growth In Cambodia," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 62(02), pages 363-375, June.
    8. Argelia Munoz Pahuamba & Ye Jianmu & Abdoulaye Oury Bah, 2015. "Latin America Development under Chinese Investment Hegemony," International Journal of Management Science and Business Administration, Inovatus Services Ltd., vol. 1(5), pages 38-50, April.
    9. Tanja Broz & Goran Buturac & Miloš Parežanin, 2020. "Digital transformation and economic cooperation: The case of Western Balkan countries," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 38(2), pages 697-722.
    10. 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.
    11. J. Rosell-Martinez & P. Sanchez-Sellero, 2011. "Foreign direct investment and technical progress in Spanish manufacturing," Post-Print hal-00693830, HAL.
    12. Vinicius Curti Cicero & Gilberto Tadeu Lima, 2020. "Foreign Direct Investment and Growth Convergence in a North-South Framework," Working Papers, Department of Economics 2020_04, University of São Paulo (FEA-USP), revised 18 Jun 2020.
    13. Veasna Kheng & Sizhong Sun & Sajid Anwar, 2017. "Foreign direct investment and human capital in developing countries: a panel data approach," Economic Change and Restructuring, Springer, vol. 50(4), pages 341-365, November.
    14. Nalan Baştürk & Richard Paap & Dick van Dijk, 2012. "Structural differences in economic growth: an endogenous clustering approach," Applied Economics, Taylor & Francis Journals, vol. 44(1), pages 119-134, January.
    15. Temiz, Dilek & Gökmen, Aytaç, 2014. "FDI inflow as an international business operation by MNCs and economic growth: An empirical study on Turkey," International Business Review, Elsevier, vol. 23(1), pages 145-154.
    16. Cheche Duan & Yicheng Zhou & Dehong Shen & Shengqiao Lin & Wei Gong & József Popp & Judit Oláh, 2021. "The Misunderstanding of China’s Investment, and a Clarification: “Faustian Bargain” or “Good Bargain”? On the OFDI Data of Central and Eastern Europe," Sustainability, MDPI, vol. 13(18), pages 1-25, September.

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