Openness and Economic Growth: Empirical Evidence On The Relationship Between Output, Inward FDI, and Trade

Abstract

The relationship between openness and economic growth in developed and
developing countries has been of continuing interest in both the theoretical and
empirical literature. In this paper. we employ a vector autoregressive (VAR)
model and error correction techniques to test for the existence and nature of the
causal relationship between output level, inward FDI and exports across a
cross-section of both developed and developing countries using data from 1960-2001.
Our main objective is to analyze the extent and sources of international
linkages between openness and economic performance. The evidence supports
hi-directional causality between exports growth and economic growth; the economic
growth and FDI relationship has mixed results.