Financial Markets, FDI, and Economic Growth: Granger Causality Tests in Panel Data Model

EFA 2005 Moscow Meetings

32 Pages Posted: 8 Mar 2005

See all articles by Shady Kholdy

Shady Kholdy

California Polytechnic State University at Pomona

Ahmad Sohrabian

California Polytechnic State University at Pomona

Date Written: February 2005

Abstract

This study investigates various links between financial markets, FDI and the economic growth. Our results, using a panel of 25 countries over the period of 1975-2002 and the Granger causality model, reveal bi-directional links between financial markets and economic growth. We find that initially in countries with low GDP per capita economic growth stimulate financial development; however, the direction of causality reverses for countries with higher GDP per capita. We also find bi-directional causality between financial markets and FDI in countries with relatively higher GDP per capita and more developed financial markets. However, our results suggest that FDI can not induce economic growth.

Keywords: Foreign direct investment, financial markets, economic growth, Granger causality, panel data

JEL Classification: F23, F43, O16

Suggested Citation

Kholdy, Shady and Sohrabian, Ahmad, Financial Markets, FDI, and Economic Growth: Granger Causality Tests in Panel Data Model (February 2005). EFA 2005 Moscow Meetings, Available at SSRN: https://ssrn.com/abstract=676085 or http://dx.doi.org/10.2139/ssrn.676085

Shady Kholdy (Contact Author)

California Polytechnic State University at Pomona ( email )

3801 W. Temple Avenue
Finance, Real Estate, and Law Department
Pomona, CA 91768
United States
909-869-3797 (Phone)
909-869-2124 (Fax)

Ahmad Sohrabian

California Polytechnic State University at Pomona ( email )

3801 W. Temple Avenue
Pomona, CA 91768
United States

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