Liberalization, FDI, and Growth in Developing Countries: A Panel Cointegration Approach |
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| Authors: | Parantap Basu Chandana Chakraborty Derrick Reagle |
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| Affiliation: | Associate Professor, Department of Economics, Fordham University, Bronx, NY 10458. Phone 1–718–817–4061, Fax 1–718–817–3518, E-mail;Associate Professor, Department of Economics and Finance, Montclair State University, Upper Montclair, NJ 07043. Phone 1–973–655–4125, Fax 1–973–655–7629, E-mail;Assistant Professor, Department of Economics, Fordham University, Bronx, NY 10458. Phone 1–718–817–4048, Fax 1–718–817–3518, E-mail |
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| 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. |
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