Does FDI Cause Economic Growth

This paper investigates the direction of causal link between foreign direct investment (FDI) and economic growth measured in GDP in nineteen developing countries of SouthEast Asia and Latin America using Cointegration technique, Granger causality test and Error Correction Model (ECM). This paper finds that five countries in Latin America and one country in East and South East Asia have long run relation and exhibit unidirectional causality running from GDP to FDI. Seven countries, two from Latin America and five from East and South East Asia, demonstrates bidirectional short run causal link between GDP and FDI. Four countries, one from Lain America and three from East and South East Asia, exhibit that there exists unidirectional short run causal link running from GDP to FDI.