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Time Series Model for Foreign Direct Investment Spillover

Li Zhou, Qing-yi Chen

Abstract


By using vector auto-regress model, this paper make a time series analysis of how foreign direct investment effect on economic growth in China. Based on the vector auto-regress model, it shows that foreign direct investment (FDI) increasing 1% will result in the gross domestic product (GDP) increased 0.79% in the next period. Through the empirical analysis,, the result show that foreign direct investment is the granger reason to regional economic growth, and there exist a co-integration relationship between foreign direct investment and economic growth. At the same time, the result of cholesky variance decomposition shows that the contribution rate of FDI to GDP is 37.15%.

Keywords


Foreign direct investment, vector auto-regress model, co-integration test, granger causality.

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