The Dynamic Relationship between Foreign Direct Investment and Economic Growth in Myanmar

This study has employed error-correction model (ECM) and standard Granger-causality test to examine the dynamic relationship between foreign direct investment and economic growth in Myanmar using annual time series data over the period 1971-2014. The empirical results show that time series of FDI and GDP are non-stationary at level but they become stationary at first difference. The Co-integration results establish the existence of a long-run relationship between the two variables. From the results of ECM, there exists a uni-directional long-run causality running from GDP to FDI and the coefficient of error correction term is negative and highly significant at 1% level, confirming the long run equilibrium relationship between the two variables. In the short run, the associated coefficient of lagged FDI and lagged GDP are all statistically significant, implying a bi-directional causality between FDI and GDP. The Standard Granger-causality results reveal that FDI has a significant positive impact on GDP in the short run but not vice versa. In general, the results can be interpreted as although FDI has a direct effect on economic growth in the short run but economic growth performance is an important driving force of FDI inflows into Myanmar in the long run.