The Granger Causality Relationship Between Foreign Direct Investment (FDI) and Economic Development in the State of Qatar

In this study, we investigate the causality relationship between the inflows of fo reign direct investment and economic development as measured by Gross Domestic Product (GDP) per capita in the State of Qatar during the period 1970 - 2010. It also investigates the direction of the relation between the two variables using sever al tests: Augmented Dickey-Fuller (ADF), Johansen cointegration and Granger Causality tests. Robust empirical findings dra wn from the Johansen cointegration analysis suggest the existence of such long-run equilibrium relationship between FDI and GDP. Furthermore, causality test indicates that there is a bi- directional causality on the FDI-GDP relationship for one, two and three year lags that imply, strongly indicating that foreign capital penetration Granger-causes economic growth in Qatar. The test results show that foreign direct investment in the short-run is affected mainly by gross domestic product and government spending which implies that the government should continue its efforts to create the economic environment which is attractive to foreign direct investment. The findings confirm the strong and positive relationship between economic growth of Qatar and FDI inflows.