External Capital Inflows and GDP Growth: A Systematic Review of Cointegration Evidence
DOI:
https://doi.org/10.68050/JAMS.2026.414Keywords:
ARDL bounds testing;, cointegration;, economic growth;, foreign aid;, foreign direct investment;, long-run equilibrium;Abstract
Purpose – This systematic review examines the long-run equilibrium relationships among external capital inflows, foreign direct investment (FDI) and foreign aid, and GDP growth, focusing on empirical studies employing cointegration techniques, to identify prevailing patterns, methodological approaches, and contextual factors shaping these long-run dynamics.
Design/Methodology/Approach – Using a Systematic Literature Review (SLR) methodology, the study analyzed peer-reviewed articles and working papers published between 2000 and 2026, drawing on Scopus, Web of Science, and Google Scholar, and synthesized findings thematically.
Findings – The evidence on long-run relationships between external capital inflows and GDP growth is mixed and context-dependent. Many studies confirm cointegration between FDI and growth, while others find no long-run relationship or conditional effects tied to institutional quality and absorptive capacity. Foreign aid shows similarly heterogeneous results, from positive long-run elasticities to insignificant or negative effects. Studies examining FDI and aid jointly reveal complex interactions, including bidirectional causality and substitution effects. The ARDL bounds testing approach has emerged as the dominant technique, followed by Johansen cointegration and panel cointegration methods.
Originality/Value – This study provides a comprehensive systematic review of long-run equilibrium relationships between external capital inflows and GDP growth, synthesizing findings across diverse geographic and methodological contexts and proposing a future research agenda.
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