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Financial globalization, convergence and growth: The role of foreign direct investment

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  • Gomes Neto, Delfim
  • Veiga, Francisco José

Abstract

Using a panel dataset covering 139 countries over the 1970–2009 period, we empirically investigate the role of foreign direct investment on growth through diffusion of technology and innovation. Using an otherwise standard growth regression and regressions on productivity growth, we introduce a direct effect of foreign direct investment, which may be proxying for innovation, and an indirect effect, to capture the role of technological catch-up. We find that these two mechanisms have a positive effect on productivity growth and on GDP growth. These results are consistent with an open economy model, in which foreign direct investment affects growth through diffusion of technology and innovation.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 37 (2013)
Issue (Month): C ()
Pages: 161-186

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Handle: RePEc:eee:jimfin:v:37:y:2013:i:c:p:161-186

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Web page: http://www.elsevier.com/locate/inca/30443

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Keywords: Foreign direct investment; Composition of foreign capital; Diffusion of technology; Catch-up; Convergence; Growth;

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Cited by:
  1. Sumru Oz, 2014. "Diffusion of Technology and Convergence of Income among Countries," Koç University-TUSIAD Economic Research Forum Working Papers 1407, Koc University-TUSIAD Economic Research Forum.

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