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Expectations and the Dynamic Feedback between Foreign Direct Investment and Economic Growth

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  • Escobari, Diego
  • Vacaflores, Diego

Abstract

This paper sets to analyze the dynamic feedback between Foreign Direct Investment (FDI) and economic growth—larger FDI promotes higher GDP, while higher GDP can be achieved with higher levels of FDI. We use panels and a sample of 19 Latin American countries to estimate a dynamic FDI and a dynamic GDP equation that jointly characterize the evolution of both variables. We find that the dynamics of GDP and FDI are mostly driven by the expectations. Shocks of GDP or FDI were found to play no role affecting the dynamics.

Suggested Citation

  • Escobari, Diego & Vacaflores, Diego, 2014. "Expectations and the Dynamic Feedback between Foreign Direct Investment and Economic Growth," MPRA Paper 58657, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:58657
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    Cited by:

    1. N.M. Odhiambo, 2022. "Does Foreign Direct Investment Spur Economic Growth? New Empirical Evidence from Sub-Saharan African Countries," Working Papers AESRI-2022-20, African Economic and Social Research Institute (AESRI), revised Jul 2022.
    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. Nicholas M. Odhiambo, 2022. "Does Foreign Direct Investment Spur Economic Growth? New Empirical Evidence From Sub-Saharan African Countries," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 67(233), pages 61-84, April – J.
    5. Nicholas M. Odhiambo, 2022. "Does Foreign Direct Investment Spur Economic Growth? New Empirical Evidence From Sub-Saharan African Countries," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 67(233), pages 61-84, April – J.

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    More about this item

    Keywords

    Foreign Direct Investment; Economic Growth; Rational Expectations;
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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