This study examines the econometric and empirical evidence of both causal and long-run relationship between foreign direct investment (FDI) and economic growth in Vietnam, covering a time span of 21 years from 1991 to 2012. | 94 | Phạm Thế Anh & Nguyễn Thị Hồng Đào | 94 - 113 Bounds Testing Approach to Cointegration: A Re-examination of FDI and Growth in Vietnam PHẠM THẾ ANH Nha Trang University Email: theanh_dhts@ NGUYỄN THỊ HỒNG ĐÀO Nha Trang University Email: hongdaontu@ ARTICLE INFO ABSTRACT Article history: Received: 11 March 2013 Received in revised form 08 August 2013 Accepted: 25 September 2013 This study examines the econometric and empirical evidence of both causal and long-run relationship between foreign direct investment (FDI) and economic growth in Vietnam, covering a time span of 21 years from 1991 to 2012. The recent and robust methodology of bounds testing or autoregressive distributed lag model (ARDL) approach to Cointegration is employed for the empirical analysis. This technique can capture both short-run and long-run dynamics of variables, particularly in small sample size cases. The findings indicate the existence of a Cointegration relationship between the two time series and a modest adjustment process from short-run to longrun equilibrium. Further results from Granger causality tests conducted within the error correction model confirm a bi-directional causality between economic growth and FDI over the study period. Keywords: bounds testing to Cointegration, causality, economic growth, FDI, Vietnam. Bounds Testing Approach to Cointegration JED October 2013| 95 1. INTRODUCTION Over the last few decades, the relationship between foreign direct investment (FDI) and economic growth has been extensively investigated by researchers from all over the world. A large number of studies found evidence of FDI growth impacts on local economies via direct capital funding and diverse externalities or spillovers (BaliamouneLutz, 2004; Klasra, 2009). Notably, FDI can transfer modern management practices and advanced technology to local firms, and generate job opportunities for local community. Moreover, the entry of foreign rivals would .
