Export, FDI and Economic Growth in Mercosur: The causal relationship and effect of trade liberalisation

Sammanfattning: Researchers agree that there exist a close connection between export, foreign direct investment and economic growth, still they do not agree about the causal relationships between them. Latin America has over the last decades faced several economic crises. However, the continent has also been characterised by emerging economies, increased globalisation and trade liberalisation where export, foreign direct investment (FDI) and economic growth play a significant role. This paper aims to examine the causal relationship between export, FDI and economic growth and furthermore to analyse whether the introduction of Mercosur has had an effect on the causality. Four of five member countries, Argentina, Brazil, Uruguay and Venezuela, are analysed using a Granger causality test. In order to do so, the tests are executed for a time period from 1975-2014 and also for two divided time periods, 1975-1991 and 1992-2014. The results present that the causal relationships and the directions differ regarding what country that is observed. It is furthermore concluded that the causal relationship in stable economies is not affected to the same extent as emerging economies. Smaller economies tend to have no causal relationship when trade is liberalised.