The paper considers an often forgotten relationship, the time delay between a cause and its effect in economies and finance. The pertinent data refers to 43 countries, over 1970–2015, for a total of 4278 observations. When countries are grouped according to the Inequality-Adjusted Human Development Index (IHDI), it is found that a time lag dependence effect exists in FDI–GDP correlations. This is established through a time-dependent Pearson ’s product-moment correlation coefficient matrix. Moreover, such a Pearson correlation coefficient is observed to evolve from positive to negative values depending on the IHDI, from low to high. It is “politically and policy relevant” that the correlation is statistically significant providing the time lag is less than 3 years. A “rank-size” law is demonstrated. It is recommended to reconsider such a time lag effect when discussing previous analyses whence conclusions on international business, and thereafter on forecasting.
The following figure plots the evolution of the “averaged” Pearson correlation coefficient trend as a function of the time lags between FDI and GDP for countries with very high IHDI, e.g. Great Britain, (S1) to those with low IHDI, e.g. India, (S4).