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Title:On the causal links between FDI and growth in developing countries PDF Logo
Authors:Hansen, Henrik
Rand, John
Issue Date:2005
Series/Report no.:Research Paper, UNU-WIDER, United Nations University (UNU) 2005/31
Abstract:We analyse the Granger causal relationships between foreign direct investment (FDI) and GDP in a sample of 31 developing countries covering 31 years. Using estimators for heterogeneous panel data we find bi-directional causality between the FDI-to-GDP ratio and the level of GDP. FDI has a lasting impact on GDP, while GDP has no longrun impact on the FDI-to-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 from FDI to GDP. This finding may be interpreted as evidence in favour of the hypotheses that FDI has an impact on GDP via knowledge transfers and adoption of new technology.
Subjects:economic growth
foreign direct investment
Granger causality
panel data
JEL:O4
F21
C33
ISBN:9291907103
Document Type:Working Paper
Appears in Collections:WIDER Research Papers, United Nations University (UNU)

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