Causality among Foreign Direct Investment and Economic Growth: A Directed Acyclic Graph Approach
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With the aim of examining the causal structure between foreign direct investment (FDI) and
economic growth, this study derives inductive causal inference using the directed acyclic
graph approach, which makes no a priori causal assumptions. There are three major findings
of this study. First, economic growth causes FDI inflows for developing countries, whereas
FDI induces economic growth for developed countries. Second, trade is an important intermediary
to facilitate the interaction between FDI and other factors. Third, the stock market
is found to be an intermediary that amplifies the influence on FDI from many causal variables
of FDI for developed countries.