Abstract

CERQUERA-LOSADA, Óscar Hernán  and  ROJAS-VELASQUEZ, Libardo. Foreign Direct Investment and Economic Growth in Colombia. Rev.fac.cienc.econ. [online]. 2020, vol.28, n.2, pp.9-26.  Epub Dec 22, 2020. ISSN 0121-6805.  https://doi.org/10.18359/rfce.4202.

This article seeks to analyze empirically the relationship between foreign direct investment (FDI) and economic growth in Colombian using data from various time series observed during 2000-2019. A cointegration test is performed, and a vector error correction (VEC) model is employed, including gross capital formation as an additional control variable. Causality tests are carried out among variables, and impulse-response functions are assessed for how they respond to changes in other variables. The results reveal that FDI and economic growth are in a longterm equilibrium relationship. We identified that economic growth is significant in attracting more investment flows. However, fdi has a moderate effect on economic growth. There is also a one-way causal relationship that goes from economic development to FDI. In other words, increased FDI flows do not necessarily translate into considerable economic growth. These results contradict the widely accepted view that an increase in FDI can improve economic growth and reinforce the idea that the success of FDI in countries depends on the initial conditions of each economy.

Keywords : foreign direct investment; economic growth; gross capital formation; cointegration; causality.

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