Abstract

In this paper, we analyze causal relationship between foreign direct investment (FDI) and economic growth in western region of China using time-series data from 1986-2010. The analysis is conducted by the means of time-series estimations through ADF unit root test, co-integration tests, error-correction analysis and Granger causality test. The purpose of the paper is to empirically investigate the impact of economic growth on FDI in western region and its dynamical mechanism. The results suggest that inward FDI flow does not lead to Granger-cause economic growth, and economic growth also does not exert significant impacts on FDI inflows, which means some studies have exaggerated the positive effect of FDI on economic growth, and eclipsed the influence of economic growth on FDI.

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