Causal Links between Supply Chain Capability and FDI: A Panel Granger Causal Analysis
Arshad Alam, Vijay Vemuri, Prabir Bagchi
Foreign Direct Investment (FDI) has grown significantly over the last few decades and it is seen as an engine for economic growth, especially for developing and transition economies, which account for more than 60% of global FDI flows. Location characteristics and supply-side factors are increasingly important in determining FDI flows. We borrow the concept of supply chain capability (SCC) of countries, developed by Alam and Bagchi (2011), to analyze the relationship between FDI and SCC for a panel of 64 countries for the period 1990 to 2013. We examine for causal rather than associative links between these factors using the Granger-causality methodology. Our results indicate that FDI Granger-causes SCC, but the causal relationship is not bidirectional. The paper contributes to the understanding of the link between FDI and SCC and has policy implications, especially for developing countries seeking to benefit from global investment flows.