Foreign direct investment and economic growth in Zimbabwe: A dynamic causality test

Abstract

In this study we examine the dynamic causal relationship between foreign direct investment (FDI) and economic growth in Zimbabwe - using the modern time-series techniques. Specifically, we employ the ARDL-bounds testing approach to examine the FDI-growth linkage. We also employ the error-correction-based causality test, which captures both the short run and long run dynamics. Contrary to some of the previous studies, this study shows that there is a distinct causal flow from economic growth to FDI in Zimbabwe. The results apply irrespective of whether the causality test is conducted in the short run or in the long run. The study, therefore, recommends that Zimbabwe should pursue pro-growth strategies, in order to promote foreign direct investment. Copyright © 2012 Inderscience Enterprises Ltd.