Influence of the interest rate on foreign direct investment, during the period 1990-2016: a global cointegration analysis

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Published: Feb 5, 2022

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Dina Sarango
Carrera de Economía, Universidad Nacional de Loja, Loja, Ecuador

Abstract

The objective of this research is to examine the incidence of the interest rate in Foreign Direct Investment (FDI) globally, specifically for 71 countries during the period 1990-2016. To meet the aforementioned objective, it was necessary to use panel data, which were compiled from the World Development Indicators (WDI) database of the World Bank (2018). In addition, an econometric model has been developed, for which, in the first instance, the Pedroni (1999) and Westerlund (2007) cointegration test was applied to find the equilibrium in the long and short term respectively; Next, the strength of the cointegration vector was estimated for individual countries through the Ordinary Least Squares (DOLS) model, for groups of countries using a Dynamic Panel with Least Squares (PDOLS) model. Regarding the results, they indicate the existence of an equilibrium in the short and long term for certain countries worldwide and by groups of countries. The strength of the cointegration vector is strong, although in some countries the relationship is negative. Finally, the Granger causality results are presented, finding a significant unidirectional relationship (from interest rates to FDI) only for low-income countries, and no relevant result was found for the rest of the countries.

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Sarango, D. (2022). Influence of the interest rate on foreign direct investment, during the period 1990-2016: a global cointegration analysis. Revista Económica, 9(2), 55–65. Retrieved from https://revistas.unl.edu.ec/index.php/economica/article/view/1210
Issue
Vol. 9 No. 2 (2021): RVE Vol 9 (July - December 2021)
Section
RESEARCH ARTICLES
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