Causal Relationship between Foreign Direct Investment and Growth: Evidence from BRICS Countries

Abstract

In this paper we examine the causal relationship between foreign direct investment (FDI) and growth of the BRICS countries. We employed Industrial Production Index (IPI) as a measure of economic growth. The stationarity of the data series are checked using augmented Dickey-Fuller (ADF) test and tested for the existence of co-integration. Johansen co-integration model found that the Brazil alone co-integrated among the selected countries at levels. The vector error correction model (VECM) employed to trace the existence of long run relationship. The results of VECM found that growth leads FDI bi-directionally for Brazil, Russia, and South Africa and FDI leads growth uni-directionally for India and China respectively.