Revisiting the FDI-led growth Hypothesis: The case of China


Yalta A. Y.

ECONOMIC MODELLING, vol.31, pp.335-343, 2013 (Journal Indexed in SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 31
  • Publication Date: 2013
  • Doi Number: 10.1016/j.econmod.2012.11.030
  • Title of Journal : ECONOMIC MODELLING
  • Page Numbers: pp.335-343
  • Keywords: FDI, Economic growth, China, Bootstrap, FOREIGN DIRECT-INVESTMENT, ECONOMIC-GROWTH, TIME-SERIES, DOMESTIC FIRMS, CAUSALITY, BOOTSTRAP, BENEFIT

Abstract

We employ simulation based inference to investigate the causal relationship between foreign direct investment and gross domestic product in China for the 1982-2008 period, both in a bivariate and a multivariate framework. Our maximum entropy bootstrap based approach, which avoids pre-test biases while also being less affected from the size distortion problem, shows that a statistically significant relationship between FDI and GDP growth does not exist. We also explore whether this result is driven by the level of financial development and we find that there is no evidence of a change in the noncausal relationship due to this contingency effect. Our results indicate that FDI does not necessarily lead to higher economic growth at the aggregate level and suggest the need for undertaking disaggregated analyses using industrial and provincial level data for the formulation of effective macroeconomic policies concerning the flows of FDI. (C) 2012 Elsevier B.V. All rights reserved.