Foreign direct investment, exports, and economic growth in selected emerging countries: Multivariate VAR analysis

Abstract

The paper adopts a time series framework of the Vector Error Correction Models (VECM) to study the dynamic relationship between export, FDI and GDP for six emerging countries of Chile, India, Mexico, Malaysia, Pakistan and Thailand. Stationarity of the series with structural breaks is also examined in the model. Given that these countries are at different stages of growth, we will be able to identify the impact of FDI and export on economic growth at different stages of growth. The results suggest that in South Asia, there is evidence of an export led growth hypothesis. However, in the long run, we identify GDP growth as the common factor that drives growth in other variables such as exports in the case of Pakistan and FDI in the case of India. The Latin American countries of Mexico and Chile show a different relationship in the short run but in the long run, exports affect the growth of FDI and output. In the case of East Asian countries, we find bi-directional long run relationship among exports, FDI and GDP in Malaysia, while we find a long run uni-directional relationship from GDP to export in case of Thailand.FDI, Exports, Multivariate VAR, Pakistan, India, Malaysia, Thailand, Chile, Mexico.