Causal Link Between FDI and Economic Growth - Panel Data Analysis of MINT Economies
Published: 2019
Author(s) Name: Karan Sabharwal |
Author(s) Affiliation: Assistant Professor in Economics, Institute of Management Studies (IMS) Ghaziabad, Uttar Pradesh
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Abstract
This paper attempts to find out the relationship between foreign direct investment (FDI) and economic growth in MINT economies namely, Mexico, Indonesia, Nigeria and Turkey, during 1981–2015. It investigates the causal link between the two variables, i.e. whether FDI causes economic growth or economic growth causes FDI. To test the relationship between the variables, panel data of four countries is analysed. Cointegration technique, Granger causality test and Vector Error Correction Model (VECM) have been used to validate the relationship between the variables. The analysis of the results shows that there exists cointegration between FDI and economic, i.e. there exists a long-run relationship between FDI and economic growth. Long-run causality was found moving from GDP to FDI in Mexico, Nigeria and Turkey. This is important for policy decision-making as barriers to FDI inflows should be removed, and growth can be maximized by increasing the capacity to absorb FDI inflows.
Keywords: JELC01, JELB23, JEL049, Economic Growth, Granger Causality, Foreign Direct Investment, Cointegration, Unit Root
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