Foreign investment and economic growth interactions in Eurasia: 1960 to 2011

This paper examines dynamic interactions between foreign direct investment (FDI) and economic growth using panel-data cointegration and causality tests. We present our results for 34 Eurasian countries for which previous research on this subject has not hitherto been performed. We find that that FDI and economic growth have both short-term and long-term causal linkages to each another and often to other identified variables. Our findings support the notion that donor countries supplying FDI tend to use FDI as an instrument of financial diplomacy. When the recipient countries experience enhanced economic growth through the FDI they receive, goodwill and more cordial relationships are fostered.