The aim of this paper is to investigate the causal relationship between Foreign Direct Investment (FDI) and economic development in Bhutan. To achieve the objective of the study, we employ the FDI data in the context of Bhutan from the year 2002 to 2017 (15 years). Johansen’s Co-integration test has been employed to test if there exists bidirectional causality between FDI and economic growth. Unit root test is used to check if the time series data is stationary. Further, Vector error correction model is used to investigate the causal relationship between FDI and economic growth in the context of Bhutan. The results indicated that there is a long run association between Gross Domestic Product and Foreign Direct Investment in the context of Bhutan as displayed by Johansen’s Cointegration Test. Vector Error Correction Model results document that there exist neither short run nor long run causality running from FDI to Gross Domestic
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