Title: Short and long-run linear and nonlinear causality between FDI and GDP for the US

Authors: Ilias A. Makris; Stavros Stavroyiannis

Addresses: Department of Accounting and Finance, School of Management and Economics, Technological Educational Institute of Peloponnese, Antikalamos 24100, Greece ' Department of Accounting and Finance, School of Management and Economics, Technological Educational Institute of Peloponnese, Antikalamos 24100, Greece

Abstract: Recent severe recessions demonstrated an urgent need for identifying and forecasting on the impact of specific macroeconomic indicators such as investment spending which is crucial for growth. Many researchers focus on the contribution of foreign investment (FDI) in recipient economies; however, findings are not clear, on whether the relation is bi-directional or not. That is, whether FDI affects growth, or it is growth that attracts FDI. The purpose of this work is to examine the direction of short and long-run causality of quarterly data of the US gross domestic product (GDP), and the rest of the world, foreign direct investments (FDI) in the US. A well-specified vector error correction model (VECM) identifies a unidirectional short and long-run causality from FDI to GDP. Furthermore, the use of the non-parametric Diks and Panchenko (2006) nonlinear causality test shows a unidirectional short and long-run nonlinear in nature remaining causality from FDI to GDP.

Keywords: foreign direct investments; gross domestic product; linear and nonlinear Granger causality; vector error correction model; US.

DOI: 10.1504/IJEBR.2019.103098

International Journal of Economics and Business Research, 2019 Vol.18 No.4, pp.466 - 479

Received: 02 Aug 2018
Accepted: 20 Nov 2018

Published online: 03 Oct 2019 *

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