The main objective for this paper is to study the causal link between FDI, GDP growth and trade in two countries, namely Indonesia and Thailand, during 1993-2008 periods. This study also investigates direction of causality between four variables involved, based on Granger causality test. In order to maintain Granger causality test, prior co-integration test and unit root test were conducted.

This study found that there are causality relationships between FDI, trade and economic growth in Indonesia and Thailand during 1993-2008 periods. Each country performs similarly in GDP growth, export and import trend but perform differently in FDI to export. The results show that in Indonesia FDI tends to Granger cause export while in Thailand export tends to Granger causes FDI. In Indonesia, GDP Granger causes export and in Thailand export Granger causes GDP. Further, the remaining relationships for GDP and import Granger causes FDI inflows.

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