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Causality among Foreign Direct Investment and Economic Growth: ADirected Acyclic Graph Approach

Published online by Cambridge University Press:  26 January 2015

Yarui Li ,
Joshua D. Woodard  and
David J. Leatham
Yarui Li
Affiliation:
Department of Agricultural Economics, Texas A&M University, College Station, Texas
Joshua D. Woodard
Affiliation:
Dyson School of Applied Economics and Management, Cornell University, Ithaca, New York
David J. Leatham
Affiliation:
Department of Agricultural Economics, Texas A&M University, College Station, Texas
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Abstract

With the aim of examining the causal structure between foreign directinvestment (FDI) and economic growth, this study derives inductive causalinference using the directed acyclic graph approach, which makes no a prioricausal assumptions. There are three major findings of this study. First,economic growth causes FDI inflows for developing countries, whereas FDIinduces economic growth for developed countries. Second, trade is animportant intermediary to facilitate the interaction between FDI and otherfactors. Third, the stock market is found to be an intermediary thatamplifies the influence on FDI from many causal variables of FDI fordeveloped countries.

Keywords

causalityeconomic growthDAGFDIF21
Type
Research Article
Information
Journal of Agricultural and Applied Economics , Volume 45 , Issue 4 , November 2013 , pp. 617 - 637
Copyright
Copyright © Southern Agricultural Economics Association 2013

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