Foreign Direct Investment and Domestic Investment On the Economic Growth of the Uzbekistan - A VECM Analysis

Abstract

The present paper deals with the relationship between FDI, GDP and DI using a vector error-correction model (VECM). The empirical model is based on quarterly data for the period 2010-2019 in Uzbekistan. The result of the Johansen cointegration rank test shows that there exists a long-run relationship among the three variables. The Granger causality test indicates a positive significant bidirectional relationship between GDP and Domestic Investment. GDP Granger causes FDI and a change in the GDP indicates in advance a change in the level of FDI The variance decomposition indicates that fluctuations in FDI are explained by the shocks in GDP (55.0 per cent) and Uzbekistan’s domestic investment has a greater impact on growth than FDI.