Research Paper on Do exports and foreign direct investment stimulate economic growth? Peru Shows Evidence of Equilibrium Relationship

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Title: Do exports and foreign direct investment stimulate economic growth? Peru Shows Evidence of Equilibrium Relationship

Abstract: This study uses annual series to calculate the dynamic effects of exports and foreign direct investments (FDI) on economic growth in Peru (1970–2020). Starting with the hypothetical Mundell-Fleming static model with assumptions, we discover that changes in exports have no impact on GDP, and that FDI’s impact on GDP can be either positive or negative depending on how the slopes of the IS and LM curves are compared. The factors are GDP growth rate (%), net flow of foreign direct investment (% of GDP), and exports of goods and services (% of GDP). While the GDP growth rate is a stationary process, FDI and exports are first-order integrated processes. The FDI-led growth hypothesis experiences feedback from GDP and exports, according to the Granger causality. The autoregressive distributed lag cointegration bound test demonstrates the findings regarding the cointegration consist of positive long-term equilibrium impacts from exports and FDI on GDP when taking into account the dependent variable GDP growth rate. According to the estimation of an error correction model, exports and FDI have little bearing on Peru’s economic growth in the short term. According to the FDI’s estimation of an error correction model, GDP and exports have little bearing on Peru’s economic growth in the short term. Finally, we draw the conclusion that Peru’s economic strategy should keep luring foreign investment to raise FDI.

Keywords: reign direct investment; economic growth; exports; Mundell–Fleming model; Granger causality; autoregressive distributed lag cointegration bound test

Paper Quality: SCOPUS / Web of Science Level Research Paper

Subject: Economics

Writer Experience: 20+ Years

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