Dynamic Effects of Foreign Direct Investment on Economic Growth of Japan: Evidence from the Asymmetric ARDL Approach

Abstract: This paper explores the asymmetric effects of FDI on Japan's economic growth using the nonlinear ARDL model for the period from 1980 through 2022. The results indicate that both the positive and negative components of FDI have significant and positive effects on economic growth in the long run. However, in the short run, the results reveal that the positive component of FDI has a significant impact on Japan's economic growth. In contrast, the negative component of FDI has a significant and negative influence on economic growth in the short run. In all, the results indicate that FDI engenders economic growth in the long run. However, in the short run, only the positive component of FDI promotes economic growth while the negative component of FDI retards economic growth in Japan. The results’ policy implications are discussed. Keywords: Economic Growth, Dynamic Multiplier, NARDL, FDI, Bounds-Test JEL Classification Number: F21, F10, O10, E31