The Causality Of Foreign Direct Investment And Economic Growth

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Testing the Causality Between Foreign Direct Investment and Economic Growth
Ned R Jackson
Utah Valley University
March 2015

This paper looks to determine the causality of foreign direct investment and economic growth. Implementing common and basic econometric techniques to test the association between these two topics in The United Arab Emirates. In past research it has been implicated that FDI has causality in economic growth mainly due to the ability FDI has to introduce new technology to the host country from the foreign countries who are in many cases much more technologically advanced. However, we hope to show that though there may be a stronger causality between FDI to economic growth that there is enough evidence to show that there are cases in which economic growth is the cause for the expansion in FDI that has taken place. =Results from the Solow growth model and Unit root test will allow us to interpret the true relationship between these two economic factors for the United Arab Emirates specifically.

The correlation between foreign direct investment (FDI) and economic growth is well documented see (Borensztein, De Gregorio, J-W. Lee 98). Even though there has been an extensive amount of research, which includes both FDI and economic growth, there still seems to be a substantial divide between the results; which are concluded within these papers. To begin in this research paper we will define foreign direct
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