Does a Causal Link Exist between Foreign Direct Investment and Economic Growth in the Asian NIEs?

by Kim, Minjung

This paper analyzes the causality between Foreign Direct Investment (FDI) and Gross Domestic Product (GDP) growth. In particular, by looking at the Newly Industrialized Economies (NIEs) in Asia, this paper tests the causal link between FDI inflows and GDP growth by using the Granger causality test and vector autoregressive representation (VAR) approach. The analysis of variance decomposition and the impulse response function provides insights into how a shock in one variable has an impact on the other variable. By providing reassessment of the relationship between FDI inflows and economic growth in Asian NIEs, this paper presents important implications for economic growth policy.