Role of exports and FDI in economic growth: Comparative study of three northeast Asian economies

Abstract

This study is on the relationships among economic growth, exports, and inward FDI. We hypothesize the existence of bi-directional causality between any two time series of economic growth, exports and inward FDI, and also hypothesize that the inter-relations among these times series are positive. The econometric results of the Granger causality test show that almost all the hypothesized bidirectional causalities are supported in Korea, Taiwan and China. Only in Korea is the bi-directional causality between economic growth and inward FDI not supported. The results of estimating the simultaneous equation model in this study support the presence of a positive relationship between exports and economic growth in all three cases, and a positive relationship between inward FDI and economic growth in the cases of China and Taiwan. But the relationship between exports and inward FDI is found to be complex.