Foreign Direct Investment and Gross Personal Income: A Comparison Between Brazil and The United States

Abstract

The Organization for Economic Co-operation and Development (OECD) has noted that foreign direct investment statistics are necessary for sound decision making. In that light, this study sets to find out if there is any conclusive causal relationship between inward foreign direct invest (FDI), outward foreign direct investment (OFDI) and gross personal income (GPI). The study utilizes time series analysis methods namely, Granger Causality tests, AutoRegressive Integrated Moving Average model (ARIMA) and Convergence Cross Mapping (CCM). The study indicates that for both Brazil and USA inward and outward foreign direct investment have varying levels of positive correlation or causality with gross personal income. A strong causal link is indicated between FDI and GPI for both countries, while OFDI influence on GPI is not very clear. Moreover, for Brazil FDI and OFDI appear to have a bidirectional causal relationship, whereas this relationship is not observed for USA. Moreover predictive time series models can be used to forecast future values of these time series. This study provides a basis for understanding foreign direct investment in both developing and developed economies through the utilization of emerging work on time series analysis methods.