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Article
Publication date: 3 August 2010

Jorge M. Andraz and Paulo M.M. Rodrigues

The purpose of this paper is to analyze possible causal relationships between exports, inward foreign investment and economic growth in Portugal and identify their direction.

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Abstract

Purpose

The purpose of this paper is to analyze possible causal relationships between exports, inward foreign investment and economic growth in Portugal and identify their direction.

Design/methodology/approach

The paper uses a three‐stage procedure based on unit root, cointegration and causality tests applied to annual data from 1977 to 2004.

Findings

The paper reveals that exports and FDI foster growth in the long‐run while in the short‐run there is a bi‐directional causal relationship between FDI and growth and a univariate causal relationship running from FDI to exports. FDI is viewed as a major determinant of economic growth, both directly and indirectly, via exports for both long and short‐run cases.

Practical implications

The results provide important corollaries in terms of policy implications and their relevance is far from being parochial. Some lessons in terms of domestic policies can be drawn by many countries that are now becoming EU members with economic structures and problems similar to those presented by the Portuguese economy in the 1980s.

Originality/value

This paper is the first of its kind to analyze the role of both FDI and exports in the Portuguese economy during the 1977‐2004 period, over which many efforts were developed in order to increase the external competition of the economy, in particular in the context of community structural frameworks. In order to reinforce the inflows of FDI, authorities should continue the progressive reduction of barriers to FDI and the reforms of the labour market which started in the early 2000s.

Details

Journal of Economic Studies, vol. 37 no. 3
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 1 August 2016

Priya Gupta and Archana Singh

The purpose of this paper is to determine cause and effect relationship between foreign direct investment (FDI) and economic growth (gross domestic product (GDP) taken as proxy…

1968

Abstract

Purpose

The purpose of this paper is to determine cause and effect relationship between foreign direct investment (FDI) and economic growth (gross domestic product (GDP) taken as proxy) for Brazil, Russia, India, China and South Africa (BRICS nations) individually for the period 1992-2013. Also, the study tries to explore the reasons behind the linkage between FDI and GDP by estimating a linear regression model consisting of both macro-economic and institutional variables.

Design/methodology/approach

Johansen cointegration technique followed by vector error correction model (VECM) and standard Granger causality test are employed to investigate the causal linkage between FDI and GDP. To delve into the reasons behind this linkage, an ordinary least square (OLS) technique is also applied to test the linear regression model consisting of net FDI inflows as dependent variable and nine macro- economic and institutional variables. Residual diagnostics is also conducted using Breusch-Godfrey Lagrange Multiplier test for diagnosing the problem of serial correlation, Breusch-Pagan-Godfrey test for examining heteroskedasticity and Jarque Bera test for verifying the normality of residuals.

Findings

The Johansen cointegration result establishes a single cointegrating vector (long run relationship) between FDI and GDP for India, China and Brazil. After proving a cointegration, VECM results revealed that there exists unidirectional long run causality running from GDP to FDI in case of Brazil, India and China. Also, it is confirmed that there exists short run causality between FDI and GDP in China, i.e. the past lags of FDI jointly impact the value of GDP. However, for Russia and South Africa, where there is no cointegration in the long run, standard Granger causality test is conducted which reveals that in both the nations, FDI and GDP are independent of one another. The results of OLS technique reveal different country-specific factors causing this linkage between FDI inflows and economic growth.

Originality/value

Various researchers in the past have examined this issue of linkage between FDI and GDP in the context of various developing or developed nations. This reveals a gap in the existing literature pertaining to this causal linkage in the context of the BRICS. Thus, this study fills this gap by analyzing not just this causal nexus with the help of VECM and Granger causality techniques but also tries to explore further the reasons for such strong/weak/no link with the help of fitting a regression model which comprises of both macro-economic and institutional country-specific variables influencing this causation.

Details

Journal of Advances in Management Research, vol. 13 no. 2
Type: Research Article
ISSN: 0972-7981

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