FDI and Growth: Cointegration and Causality in the Cases of Chile and Colombia

by Adriana-Maria Forero-Perez

Institution: Vienna University of Economics and Business
Year: 2012
Keywords: RVK QG 630, QM 355; foreign direct investment / cointegration / causality / Colombia / Chile / economic growth
Record ID: 1031785
Full text PDF: http://epub.wu.ac.at/3644/1/FORERO%2DPEREZ_Dissertation_September_2012_FINAL_DOCUMENT.pdf


Chile and Colombia are two prosperous economies among the main FDI recipients in Latin America. Both countries underwent structural reforms that favored the entrance of transnational corporations and liberalized the economies. Considering that FDI flows have been largely resource-seeking and market-seeking it seems that the main driver of FDI in these two countries, besides their resource endowment, is economic growth. The document explores the hypothesis of growth-driven FDI carrying out cointegration and Granger causality tests at aggregate and sector levels. After the introduction, Chapters 2 and 3 present the evolution of world FDI flows and a literature review. Chapters 4 and 5 discuss the policy framework in Latin America and the evolution of FDI in Chile and Colombia. Finally, Chapter 6 presents the estimations and Chapter 7 the conclusions. The findings of the analysis suggest a long-term relationship between FDI and growth and validate the hypothesis of growth-driven FDI at the macroeconomic level. However, at the sector level the existence of a long run cause-effect relationship cannot be established in most of the cases. Regarding the direction of Granger causality at this level results are heterogeneous across sectors. The main conclusion of the thesis is that economic growth does Granger cause FDI at the aggregate level, but at the sector level the causal linkage seems not to be direct. (author's abstract)