# Evidence for Gross Domestic Product growth time delay dependence over Foreign Direct Investment. A time-lag dependent correlation study

## TL;DR

This study investigates the time delay effects of Foreign Direct Investment on GDP growth across 43 countries from 1970 to 2015, revealing a significant lag-dependent correlation influenced by inequality levels.

## Contribution

It demonstrates the existence of a time-lag dependence in FDI-GDP correlations and introduces a time-dependent correlation analysis considering inequality indices.

## Key findings

- Correlation shifts from positive to negative with increasing IHDI.
- Significant correlation exists for time lags less than 3 years.
- A rank-size law describes the correlation distribution.

## Abstract

This paper considers an often forgotten relationship, the time delay between a cause and its effect in economies and finance. We treat the case of Foreign Direct Investment (FDI) and economic growth, - measured through a country Gross Domestic Product (GDP). The pertinent data refers to 43 countries, over 1970-2015, - for a total of 4278 observations. When countries are grouped according to the Inequality-Adjusted Human Development Index (IHDI), it is found that a time lag dependence effect exists in FDI-GDP correlations. This is established through a time-dependent Pearson 's product-moment correlation coefficient matrix. Moreover, such a Pearson correlation coefficient is observed to evolve from positive to negative values depending on the IHDI, from low to high. It is "politically and policy "relevant" that the correlation is statistically significant providing the time lag is less than 3 years. A "rank-size" law is demonstrated. It is recommended to reconsider such a time lag effect when discussing previous analyses whence conclusions on international business, and thereafter on forecasting.