Economic Growth and Foreign Direct Investment in the Developing Countries: An Analysis Based on Panel Data

Abstract

This paper analyzes the Granger causality between economic growth and Foreign Direct Investment (FDI) inflows in the three income groups of 112 developing countries over the period of 1980 to 2006. For this purpose, panel data techniques, including panel unit root, panel cointegration, and panel vector error correction model, have been applied. The research findings indicate that; firstly, there is a positive and statistically significant relationship between economic growth and FDI inflow in each of three groups. Secondly, these findings, also, provide strong evidence from gtanger causality between these two variables in all income groups.

Keywords

• foreign direct investment
• economic growth
• panel data
• granger causality