Do Foreign Direct Investment and Gross Domestic Investment Promote Economic Growth?

The paper attempts to show causal relationships between economic growth and FDI and GDI in 80 countries over the period 1971–95, by using a panel VAR model. The results show that FDI Granger–causes economic growth, and vice versa; however, the effects are rather more apparent from growth to FDI than from FDI to growth. Also, GDI does not Granger–cause economic growth, but economic growth robustly Granger–causes GDI. These findings suggest that strong positive associations between economic growth and FDI inflows or GDI rates do not necessarily mean that high FDI inflows or GDI rates lead to rapid economic growth.