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Do Multinational Enterprises Contribute to Convergence or Divergence? A Disaggregated Analysis of US FDI

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  • David Mayer-Foulkes
  • Peter Nunnenkamp

Abstract

It is widely held that foreign direct investment (FDI) has a positive effect on economic growth. To test this hypothesis, we perform convergence regressions derived from a theoretical model on the impact of FDI on endogenous technological change in small economies. The model includes FDI externalities that enhance growth, but also shows that FDI can crowd out host country income and reduce local innovation. The empirical analysis employs disaggregated US data for various FDI-related activities-in addition to the conventionally used aggregate FDI stocks and flows. We estimate the net FDI impact on the convergence rate of per-capita income to US levels, controlling for human development, financial development, and trade. We find that FDI accelerates convergence for high-income countries only, otherwise slowing it down. Copyright � 2009 The Authors. Journal compilation � 2009 Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Development Economics.

Volume (Year): 13 (2009)
Issue (Month): 2 (05)
Pages: 304-318

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Handle: RePEc:bla:rdevec:v:13:y:2009:i:2:p:304-318

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=1363-6669

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Cited by:
  1. Eckhardt Bode & Peter Nunnenkamp, 2007. "Does Foreign Direct Investment Promote Regional Development in Developed Countries? A Markov Chain Approach for US States," Kiel Working Papers 1374, Kiel Institute for the World Economy.
  2. Jan Hanousek & Evžen Kocenda & Mathilde Maurel, 2010. "Direct and indirect effects of FDI in emerging European markets : a survey and meta-analysis," Documents de travail du Centre d'Economie de la Sorbonne 10024, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  3. Michael Hübler & Alexander Glas, 2014. "The Energy-Bias of North–South Technology Spillovers: A Global, Bilateral, Bisectoral Trade Analysis," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 58(1), pages 59-89, May.
  4. Hübler, Michael, 2013. "South-North convergence from a new perspective," ZEW Discussion Papers 13-104, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  5. repec:hal:journl:halshs-00469544 is not listed on IDEAS

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