The direction of causality between outward FDI and GDP can be mixed if
countries are studied individually with time series methods of estimation because
of the differences in economic structures. Therefore, the presence of a type of
relationship between these two variables can be country specific. The occurrence of a
relationship may depend on the trade regime, human capital conditions and the
stability of the home country. This is obvious when we look at the empirical literature
on the direction of causality between inward FDI and GDP. For instance, Zhang
(2001) tests for the presence of short-run and long-run Granger causality between
inward FDI stock and GDP of four Latin American countries and seven East Asian
countries. He is able to find short-run causality from inward FDI stock to GDP for
Singapore; short-run causal link from GDP to inward FDI stock for Brazil, Korea
and Thailand; and no short-run causal link for Argentina. He also finds long-run
causal link from inward FDI stock to GDP for Hong Kong and Taiwan;
bidirectional long-run causality for Mexico and Taiwan; and unidirectional longrun
causality from GDP to FDI stock for Colombia. Recognizing the direction of
causality between outward FDI and GDP can vary from one country to another if
countries are studied individually. I would like to address this question with the data
of the high income Asian country: Japan.