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Foreign direct investment and economic growth in less developed countries: an empirical study of causality and mechanisms

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We examine the causality between foreign direct investment (FDI) and economic growth for 66 developing countries, taking into account their interaction with exports and technological change. Time series analysis for each country is conducted, based on a method introduced by Toda and Yamamoto (1995) for testing Granger causality in the presence of nonstationary time series. The main findings of this article are: FDI causes growth in several of the developing countries, but the mechanism through which this works differs across countries and reverse causality from growth to FDI exists for many countries.
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Document Type: Research Article

Affiliations: 1: American Express Company, NY 10285, USA 2: Department of Economics and Policy Studies, University of Notre Dame, Notre Dame, IN 46556, USA 3: Discover Financial Services, IL 60015, USA

Publication date: 2008-08-01

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