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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 25, No. 4, pp.413-439
ISSN: 1225-0279 (Print)
Print publication date 30 Nov 2012
Received 20 Jun 2012 Revised 19 Oct 2012 Accepted 26 Oct 2012

Empirical Evidence on the Relationship between Foreign Direct Investment and Economic Growth: A Cross-Country Exploration in Asia

Samrat Roy ; Kumarjit Mandal
Corresponding Author, Assistant Professor, St. Xavier’s College (Autonomous), 30 Mother Teresa Sarani Kolkata-700016, India, Tel: +91-033-2255-1204, Fax: +91-33-22479966 samratsxc@gmail.com
Associate Professor, Department of Economics, University of Calcutta, 56A B.T. Road Kolkata-700050, India, Tel: +91-033-2557-5082, Fax: +91-033-2528-4066 kumarjitm@hotmail.com

JEL Classification: C22, F30, O40

Abstract

The issue of capital flows is considered to be the most accessible route for economic growth whereby investment is regarded as the engine of growth. The worldwide changes have recognized the importance of Foreign Direct Investment (FDI) as one of the possible options to stimulate growth momentum. Against this backdrop this paper examines the short run and long run dynamics between economic growth and foreign direct investment for selected Asian economies covering the period from 1975 to 2010. A neo-classical production function is estimated to capture the short run dynamics followed by cointegration technique to capture the long run effect. This paper provides strong evidence regarding the existence of long run equilibrium relationship between FDI and growth for majority of the countries followed by varied causality between foreign direct investment and economic growth. The policy recommendations may not be uniform for the entire Asian region due to their diversified industrialization experience.

Keywords:

Foreign Direct Investment, Economic growth, Cointegration, Granger causality

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