TITLE:
Integration of GDP and FDI in Economies at Different Stages of Growth
AUTHORS:
Shalini Talwar, Shaila Srivastava
KEYWORDS:
Cointegration Test, Foreign Direct Investment, Granger Causality Test, Gross Domestic Product, Unit Root Test, Vector Error Correction Model (VECM)
JOURNAL NAME:
Theoretical Economics Letters,
Vol.8 No.11,
August
9,
2018
ABSTRACT: The objective of this study is to analyze the
relationship between FDI and GDP for countries representing developed,
developing and underdeveloped economies around the world. The countries
identified for the purpose are Bhutan, Ethiopia, India, Brazil, USA and UK.
Johansen cointegration test reveals that long-run equilibrium relationship
between the two variables exists for Ethiopia, India and UK only. The VEC model
shows no
related short-run causality for any of these three countries. The study has
implications in terms of policy decisions. Using FDI to boost GDP growth rate
in the short-run is not an
effective option for any country under the study. Since the vector error
correction (VEC) model suggests that the two variables have a statistically
significant adjustment mechanism for India, the study concludes that India can
use FDI to leverage her long-term
GDP. No evidence of link between the state of development of economy and
integration of FDI and GDP is found by the study.