Liberalization, FDI, and growth in developing countries: A panel cointegration approach

Parantap Basu, Chandana Chakraborty, Derrick Reagle

Research output: Contribution to journalArticlepeer-review

158 Scopus citations


Using a panel cointegration framework, the article explores the two-way link between FDI and growth for a panel of 23 developing countries. In addition, it investigates the impact of liberalization on the dynamics of the FDI and GDP relationship. A long-run cointegrating relationship is found between FDI and GDP after allowing for heterogeneous country effects. The cointegrating vectors reveal a bidirectional causality between GDP and FDI for more open economies. For relatively closed economies, long-run causality appears unidirectional and runs from GDP to FDI, implying that growth and FDI are not mutually reinforcing under restrictive trade and investment regimes.

Original languageEnglish
Pages (from-to)510-516
Number of pages7
JournalEconomic Inquiry
Issue number3
StatePublished - Jul 2003


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