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Does foreign direct investment lead or lag economic growth ? evidence from Russia

Saparova, Nurzhamal and Masih, Mansur (2018): Does foreign direct investment lead or lag economic growth ? evidence from Russia.

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It is generally believed by many economists that particularly in the developing countries, foreign direct investment (FDI) plays a very important role. The FDI is even considered as the engine of economic growth and development. However, various empirical studies show contradictory results where the impact of FDI on economic growth is not definitive. In this paper we attempt to examine whether a long-run theoretical relationship does indeed exist between the foreign direct investment and economic growth and whether FDI has any significant causal impact on driving economic growth. The standard time series techniques are used to address our research objectives. Russia is used as a case study. Our results tend to indicate that there is a long-run theoretical relationship between the FDI inflow and economic growth as evidenced by cointegration test. However, based on the generalized variance decomposition test, the FDI does not lead but lag economic growth at least in the context of Russia.

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