Abstract
In this paper, we analyze causal relationship between foreign direct investment (FDI) and economic growth in western region of China using time-series data from 1986-2010. The analysis is conducted by the means of time-series estimations through ADF unit root test, co-integration tests, error-correction analysis and Granger causality test. The purpose of the paper is to empirically investigate the impact of economic growth on FDI in western region and its dynamical mechanism. The results suggest that inward FDI flow does not lead to Granger-cause economic growth, and economic growth also does not exert significant impacts on FDI inflows, which means some studies have exaggerated the positive effect of FDI on economic growth, and eclipsed the influence of economic growth on FDI.
Highlights
The correlation between foreign direct investment (FDI) and economic growth has been the key topics of researchers, government officials and practitioners for decades
This paper has analyzed the linkage between GDP and FDI in western region China, exemplified by time-series data through augmented Dickey-Fuller test (ADF) unit root tests, co-integration tests, error-correction analysis and Granger causality test
The results show that FDI inflows of western region China does not lead to Granger-cause economic growth, and economic growth does not, significantly affect FDI
Summary
The correlation between foreign direct investment (FDI) and economic growth has been the key topics of researchers, government officials and practitioners for decades. There have been vast numbers of empirical research to examine the impact of FDI on the economic growth of different recipient countries. Other scholars are trying to analyze the endogeneity problem between FDI and economic growth by many empirical means and methods (Li & Liu, 2005; Chowdury & Mavrotas, 2006), such as Granger causality or VAR/VECM frameworks (Burham, 2004) or the Arrelano-Bond generalized method of moments (GMM) approach (Yao, 2006). In China, an increasing number of studies attempted to reveal the uneven regional allotment of FDI and its contributing factors. Since “go west” policy, the growing FDI inflows into western region has become an important driving force of ecnomy development. There are few studies providing the causal relationships between FDI and economic growth, especially in less-developed western region with large number of minorities’ population
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