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Foreign Direct Investment: Flows, Volatility, and the Impact on Growth

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  • Robert Lensink
  • Oliver Morrissey

Abstract

This paper contributes to the literature on FDI and economic growth. We deviate from previous studies by introducing measures of the volatility of FDI inflows. As introduced into the model, these are predicted to have a negative effect on growth. We estimate the standard model using cross-section, panel data, and instrumental variable techniques. Whilst all results are not entirely robust, there is a consistent finding that volatility of FDI has a negative impact on growth. The evidence for a positive effect of FDI levels on growth is not robust, nor is that for any effect of human capital. Copyright � 2006 The Authors; Journal compilation � 2006 Blackwell Publishing Ltd.

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Bibliographic Info

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

Volume (Year): 14 (2006)
Issue (Month): 3 (08)
Pages: 478-493

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Handle: RePEc:bla:reviec:v:14:y:2006:i:3:p:478-493

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Cited by:
  1. Artelaris, Panagiotis & Arvanitidis, Paschalis & Petrakos, George, 2006. "Theoretical and Methodological Study on Dynamic Growth Regions and Factors Explaining their Growth Performance," Papers DYNREG02, Economic and Social Research Institute (ESRI).
  2. Hegerty, Scott W., 2009. "Capital inflows, exchange market pressure, and credit growth in four transition economies with fixed exchange rates," Economic Systems, Elsevier, vol. 33(2), pages 155-167, June.
  3. Majid, Nomaan, 2009. "The global recession and developing countries," ILO Working Papers 448267, International Labour Organization.
  4. Zaiter Lahimer, Mahjouba, 2011. "L’impact des entrées de capitaux privés sur la croissance économique dans les pays en développement," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/7670 edited by Sterdyniak, Henri, November.
  5. Joël CARIOLLE, 2012. "Measuring macroeconomic volatility - Applications to export revenue data, 1970-2005," Working Papers I14, FERDI.
  6. Rossitsa Rangelova, 2009. "Changing Determinants of the Economic Growth – Theoretical Base and Specifics of the Empirics," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 3-32.
  7. Mathevet, Laurent & Steiner, Jakub, 2013. "Tractable dynamic global games and applications," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2583-2619.
  8. Chakraborty, Chandana & Nunnenkamp, Peter, 2008. "Economic Reforms, FDI, and Economic Growth in India: A Sector Level Analysis," World Development, Elsevier, vol. 36(7), pages 1192-1212, July.
  9. Vatthanamixay Chansomphou & Masaru Ichihashi, 2011. "Foreign aid, foreign direct investment and economic growth of Lao PDR," IDEC DP2 Series 1-2, Hiroshima University, Graduate School for International Development and Cooperation (IDEC).
  10. EDWARDS, Jeffrey A., 2010. "GDP Growth Volatility and Regional Free Trade Agreements," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 10(2), pages 73-86.
  11. Jay Kathavate, 2013. "Corruption, aid volatility & growth," Economics Bulletin, AccessEcon, vol. 33(2), pages 1159-1169.
  12. Joël CARIOLLE, 2012. "Mesurer l’instabilité macroéconomique - Applications aux données de recettes d’exportation, 1970-2005," Working Papers I14, FERDI.
  13. Dalila Nicet-Chenaf & Eric Rougier, 2014. "Source and host country volatility and FDI: A gravity analysis of European investment to Middle East and North Africa," Working Papers hal-00985795, HAL.
  14. Chee-keong Choong & Venus khim-sen Liew, 2009. "Impact of foreign direct investment volatility on economic growth of asean-5 countries," Economics Bulletin, AccessEcon, vol. 29(3), pages 1829-1841.
  15. Harms, Philipp & Méon, Pierre-Guillaume, 2011. "An FDI is an FDI is an FDI? The growth effects of greenfield investment and mergers and acquisitions in developing countries," Proceedings of the German Development Economics Conference, Berlin 2011 38, Verein für Socialpolitik, Research Committee Development Economics.
  16. Demir, Firat, 2006. "Volatility of short term capital flows, financial anarchy and private investment in emerging markets," MPRA Paper 3080, University Library of Munich, Germany, revised May 2007.
  17. Kathavate, Jay & Mallik, Girijasankar, 2012. "The impact of the Interaction between institutional quality and aid volatility on growth: theory and evidence," Economic Modelling, Elsevier, vol. 29(3), pages 716-724.
  18. Choong, Chee-Keong & Baharumshah, Ahmad Zubaidi & Yusop, Zulkornain & Habibullah, Muzafar Shah, 2010. "Private capital flows, stock market and economic growth in developed and developing countries: A comparative analysis," Japan and the World Economy, Elsevier, vol. 22(2), pages 107-117, March.
  19. Jellal, Mohamed, 2014. "Diaspora transferts et volatilité économique
    [Diaspora transfers and economic volatility]
    ," MPRA Paper 57288, University Library of Munich, Germany.

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