Does Foreign Direct Investment Lead to Economic Growth? Evidences from Asian Developing Countries

Abstract

The study about the interrelationship between FDI and economic growth in the host country is one of the hottest discussions. Some of the studies have evidence and consider FDI as the growth driver and some others don’t. This study attempted to scrutinize the causal association of FDI with GDP in Indonesia, India, Malaysia and Bangladesh for the years of 1990 to 2014. Cointegration test has been applied in this study which shows that there is a long-term interrelationship within FDI and economic growth and then applied the Granger causality (GC) test which is based on the VECM. The short run results show that there are no evidence of causality direction from FDI to GDP and vice versa, whereas the long run results show that there is a positive impact of FDI and other variables to the GDP but not significant, and from GDP and other variables to FDI there is a negative interrelationship but significant. The results show the ambiguous interrelationship between FDI and economic growth.