Revisiting the FDI-led growth Hypothesis: The case of China |
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| Affiliation: | 1. China Center for Special Economic Zone Research, Shenzhen University, Nanhai Ave 3688, Shenzhen, Guangdong, 518060, PR China;2. CeNDEF, Amsterdam School of Economics, University of Amsterdam, Valckenierstraat 65, 1018 XE Amsterdam, The Netherlands;3. Department of Econometrics & OR, VU University Amsterdam, De Boelelaan 1105, 1081 HV Amsterdam, The Netherlands;1. Faculty of Economics and Management, University of Sfax, Tunisia;2. Faculty of Law, Economics and Management of Jendouba, University of Jendouba, Tunisia;3. Montpellier Business School, Montpellier, France;4. Department of International Trade and Finance, School of Management and Economics, Beijing Institute of Technology, Beijing, China;5. COMSATS University of Islamabad, Lahore Campus, Pakistan;6. Management Systems, Logistics Institute, Faculty of Business, Law and Politics, University of Hull, UK;7. IESEG School of Management, France |
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| Abstract: | We employ simulation based inference to investigate the causal relationship between foreign direct investment and gross domestic product in China for the 1982–2008 period, both in a bivariate and a multivariate framework. Our maximum entropy bootstrap based approach, which avoids pre-test biases while also being less affected from the size distortion problem, shows that a statistically significant relationship between FDI and GDP growth does not exist. We also explore whether this result is driven by the level of financial development and we find that there is no evidence of a change in the noncausal relationship due to this contingency effect. Our results indicate that FDI does not necessarily lead to higher economic growth at the aggregate level and suggest the need for undertaking disaggregated analyses using industrial and provincial level data for the formulation of effective macroeconomic policies concerning the flows of FDI. |
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