Economic Growth, FDI, and Trade Openness: Causality for the EU and ASEAN

This thesis analyzes two causality models, the first model is used to check for causality between FDI and economic growth and the second one analyzes the causality between trade openness and eco­ nomic growth among fourteen EU (European Union) and five ASEAN (Association of Southeast Asian Nations) countries over the period 1970-2015. In order to check for causa lity and its direc­ tions, Augmented Dickey Fuller (ADF) unit root test, Johansen co-integration test, and Vector Error Correction Model (VECM) are performed. The results show that FDI is motivated by economic growth (Austria, Denmark, Sweden, Indonesia, Malaysia, Thailand,Philippines) and trade openness is motivated by economic growth (Denmark, UK). However,it is also found that economic growth is motivated by FDI (Philippines) and economic growth is motivated by trade openness (Austria, Sweden, Philippines). Bidirectional relationship between economic growth and FDI is found in the case of Philippines, but there is no bi-directional relationship between economic growth and trade openness. Causality among the variables is country-specific.