Hostname: page-component-586b7cd67f-t7czq Total loading time: 0 Render date: 2024-11-22T05:36:42.684Z Has data issue: false hasContentIssue false
  • English
  • Français

Causality among Foreign Direct Investment and Economic Growth: ADirected Acyclic Graph Approach

Published online by Cambridge University Press:  26 January 2015

Yarui Li ,
Joshua D. Woodard  and
David J. Leatham
Yarui Li
Affiliation:
Department of Agricultural Economics, Texas A&M University, College Station, Texas
Joshua D. Woodard
Affiliation:
Dyson School of Applied Economics and Management, Cornell University, Ithaca, New York
David J. Leatham
Affiliation:
Department of Agricultural Economics, Texas A&M University, College Station, Texas
Get access Rights & Permissions [Opens in a new window]

Abstract

With the aim of examining the causal structure between foreign directinvestment (FDI) and economic growth, this study derives inductive causalinference using the directed acyclic graph approach, which makes no a prioricausal assumptions. There are three major findings of this study. First,economic growth causes FDI inflows for developing countries, whereas FDIinduces economic growth for developed countries. Second, trade is animportant intermediary to facilitate the interaction between FDI and otherfactors. Third, the stock market is found to be an intermediary thatamplifies the influence on FDI from many causal variables of FDI fordeveloped countries.

Keywords

causalityeconomic growthDAGFDIF21
Type
Research Article
Information
Journal of Agricultural and Applied Economics , Volume 45 , Issue 4 , November 2013 , pp. 617 - 637
Copyright
Copyright © Southern Agricultural Economics Association 2013

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Alfaro, L., Chanda, A., S. Kalemli-Ozcan, and Sayek., S. “FDI and Economic Growth: The Role of Local Financial Markets.” Journal of International Economics 64(October 2004): 89–112.10.1016/S0022-1996(03)00081-310.1016/S0022-1996(03)00081-3Google Scholar
Anwar, S., and Nguyen, L.R.. “Foreign Direct Investment and Economic Growth in Vietnam.” Asia Pacific Business Review 16(2010): 183–202.10.1080/10438590802511031Google Scholar
Asiedu, E. “On the Determinants of Foreign Direct Investment to Developing Countries: Is Africa Different?” Working paper, Dept. of Econ., University of Kansas, Lawrence, KS, 2001.Google Scholar
Balasubramanyam, V.N., Salisu, M., and Sapsford., D. “Foreign Direct Investment and Growth in EP and IS Countries.” The Economic Journal 106(1996):92–105.10.2307/2234933Google Scholar
Barro, R., and Sala-i-Martin, X.. “Convergence.” Journal of Political Economy 100(1992):223–51.10.1086/26181610.1086/261816Google Scholar
Bessler, D.A. On World Poverty: Its Causes and Effects. Rome, Italy: Food and Agricultural Organization of the United Nations, Research Bulletin, 2003.Google Scholar
Bessler, D.A. “On Modeling Environmental and Agricultural Interfaces with Directed Acyclic Graphs.” Comments for OECD Conference, Paris France, June 30-July 2005.Google Scholar
Bessler, D.A. “On Correlation and Causation.” Unpublished manuscript, Texas A&M University, March 2010.Google Scholar
Bessler, D.A., and Akleman., D.G. “Farm Prices, Retail Prices, and Directed Graphs: Results for Pork and Beef.” American Journal of Agricultural Economics 80(1998): 1144-419.10.2307/1244220Google Scholar
Bessler, D.A., Yang, J., and Wongcharupan., M. “Price Dynamics in the International Wheat Market: Modeling with Error Correction and Directed Acyclic Graphs.” Journal of Regional Science 43(2003): 1–33.10.1111/1467-9787.0028710.1111/1467-9787.00287Google Scholar
Bizimana, J., Angerer, J.P., and Bessler., D.A. “Cattle Markets Integration and Price Discovery in Three Developing Countries of Mali, Kenya, and Tanzania,” Paper presented at AAEA annual meeting, Seattle, WA, August 12-14, 2012.Google Scholar
Borensztein, E., Gregorio, J. De, and Lee., J. “How Does Foreign Direct Investment Affect Economic Growth?” Journal of International Economics 45(1998): 115-35.10.1016/S0022-1996(97)00033-010.1016/S0022-1996(97)00033-0Google Scholar
Boyd, J.H., and Smith., B.D. “Intermediation and the Equilibrium Allocation of Investment Capital: Implications for Economic Development.” Journal of Monetary Economics 30(1992):409-32.10.1016/0304-3932(92)90004-L10.1016/0304-3932(92)90004-LGoogle Scholar
Brecher, R. “Second-Best Policy for International Trade and Investment.” Journal of International Economics 14(1983):313–20.10.1016/0022-1996(83)90007-7Google Scholar
Brecher, R.A., and Alejandro, C.F. Diaz. “Tariffs, Foreign Capital and Immiserizing Growth.” Journal of International Economics 7(1977): 317–22.10.1016/0022-1996(77)90048-4Google Scholar
Carkovic, M., and Levine., R. “Does Foreign Direct Investment Accelerate Economic Growth?” Working Paper, Dept. of Finance, University of Minnesota, Minneapolis, MN, 2002.Google Scholar
Chowdhury, A., and Mavrotas., G. “FDI and Growth: What Causes What?” World Economy 29(2006):9–19.10.1111/j.1467-9701.2006.00755.xGoogle Scholar
Claessens, S., Klingebiel, D., and Schmukler., S. “Explaining the Migration of Stocks from Exchanges in Merging Economies to International Centres.” CEPR Discussion Paper No. 3301, Washington, DC: Development Research Group, World Bank, 2002.Google Scholar
De Backer, K., and Sleuwaegen., L. “Does Foreign Direct Investment Crowd Out Domestic Entrepreneurship?” Review of Industrial Organization 22(2003):67–84.10.1023/A:1022180317898Google Scholar
De Mello, J.L. “Foreign Direct Investment-Led Growth: Evidence from Time Series and Panel Data.” Oxford Economic Papers 51(1999): 133– 51.10.1093/oep/51.1.13310.1093/oep/51.1.133Google Scholar
Embrechts, P., McNeil, A., and Straumann., D. “Correlation and Dependence in Risk Management: Properties and Pitfalls.” RISK Magazine (May 1999):69–71.Google Scholar
Evans, P. “Using Cross-Country Variances to Evaluate Growth Theories.” Journal of Economic Dynamics & Control 20(1996): 1027-49.10.1016/0165-1889(95)00888-810.1016/0165-1889(95)00888-8Google Scholar
Fallon, G., Cook, M., and Billimoria., A. “What Factors Attract Foreign Direct Investment?” Magazine article in Teaching Business & Economics (Autumn 2001).Google Scholar
Froot, K.A., and Stein., J.C. “Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach.” The Quarterly Journal of Economics 106(1991): 1191-217.10.2307/2937961Google Scholar
Hansen, H., and Rand., J. “On the Causal Links between FDI and Growth in Developing Countries.” World Economy 29(2006):21–41.10.1111/j.1467-9701.2006.00756.xGoogle Scholar
Hermes, N., and Lensink., R. “Foreign Direct Investment, Financial Development and Economic Growth.” The Journal of Development Studies 40(2003): 142-63.10.1080/00220380412331293707Google Scholar
Kwon, D., and Bessler., D. “Graphical Methods, Inductive Causal Inference, and Econometrics: A Literature Review.” Computational Economics 38(2011):85–106.10.1007/s10614-010-9236-910.1007/s10614-010-9236-9Google Scholar
Laudicina, P.A., Gott, J., and Phol., S. Investing in a Rebound—The 2010 A.T. Kearney FDI Confidence Index. Chicago, IL: A.T. Kearney, Inc., 2010.Google Scholar
Laudicina, P.A., and Pau., J. New Concerns in an Uncertain World—The 2008 A.T. Kearney FDI Confidence Index. Chicago, IL: A.T. Kearney, Inc., 2008.Google Scholar
Li, L., and Lin., Z. “Foreign Direct Investment Decisions under Environmental Uncertainty: Some Implications for the Chinese Market.” Paper presented at the Inaugural Conference of International Association for Chinese Management Research (IACMR), Beijing, China, June 17-20, 2004.Google Scholar
Li, X., and Liu., X. “Foreign Direct Investment and Economic Growth: An Increasingly Endoge-neous Relationship.” World Development 33(2005):393–407.10.1016/j.worlddev.2004.11.001Google Scholar
Mankiw, N.G., Romer, D., and Weil., D.N. “A Contribution to the Empirics of Economic Growth.” The Quarterly Journal of Economics 107(1992):407–37.10.2307/2118477Google Scholar
Michie, J. “The Impact of Foreign Direct Investment on Human Capital Enhancement in Developing Countries.” Report for the Organization for Economic Co-operation and Development (OECD), November 2001.Google Scholar
Neuhaus, M. The Impact of FDI on Economic Growth: An Analysis for the Transition Counties of Central and Eastern Europe. New York, NY: Physica-Verlag Heidelberg, 2006.Google Scholar
Oliveira, L.H. “Foreign Direct Investment and Export-Led Growth: A Challenge to Brazil.” Working paper, XIV Minerva Program, School of Business and Public Management, The George Washington University, Washington, DC, 2001.Google Scholar
Pearl, J. Causality. Cambridge, UK: Cambridge University Press, March 2000.Google Scholar
Pfaffermayr, M. “Foreign Outward Direct Investment and Exports in Austrian Manufacturing: Substitutes or Complements?” Review of World Economics 132(1996):501–22.Google Scholar
Sprites, P., Glymour, C., and Scheines., R. Causation, Prediction, and Search. 2nd ed. Boston, MA: MIT Press, 2000.Google Scholar
Zhang, K.H. “Does Foreign Direct Investment Promote Economic Growth? Evidence from East Asia and Latin America.” Contemporary Economic Policy 19(2001): 175–85.10.1111/j.1465-7287.2001.tb00059.xGoogle Scholar