Liberalization, FDI, and growth in developing countries

A panel cointegration approach

Parantap Basu, Chandana Chakraborty, Derrick Reagle

Research output: Contribution to journalArticleResearchpeer-review

102 Citations (Scopus)

Abstract

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
Volume41
Issue number3
DOIs
StatePublished - 1 Jul 2003

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Liberalization
Causality
Panel cointegration
Developing countries
Country effects
Long-run relationship
Open economy

Cite this

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Liberalization, FDI, and growth in developing countries : A panel cointegration approach. / Basu, Parantap; Chakraborty, Chandana; Reagle, Derrick.

In: Economic Inquiry, Vol. 41, No. 3, 01.07.2003, p. 510-516.

Research output: Contribution to journalArticleResearchpeer-review

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