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Does Foreign Direct Investment Enhance Labor Productivity Growth in Chile? A Cointegration Analysis

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  • Miguel D. Ramirez

    ()
    (Department of Economics, Trinity College)

Abstract

This paper examines the impact of foreign direct investment (FDI) on labor productivity growth in Chile. After a critical review of the Chilean experience with FDI flows during the 1990s, the paper presents a simple growth model that explicitly incorporates any positive (negative) externalities generated by additions to the foreign capital stock. Using cointegration analysis, the article estimates a dynamic labor productivity function for the 1960-2000 period that includes, inter alia, the impact of changes in the stock of foreign and public capital. The error correction model (ECM) estimates suggest that increases in both public (lagged) and foreign (lagged) investment have a positive and economically significant effect on the rate of labor productivity growth. The error correction terms of the estimated model are negative and statistically significant, thus suggesting that deviations of actual labor productivity from its long-run value are corrected in subsequent periods. The article also reports historical simulations from the estimated ECMs that show that the models are able to track the movements in the actual series. Finally, the paper offers some cautionary observations with regard to the role of FDI flows in promoting capital formation and labor productivity growth in Chile.

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File URL: http://college.holycross.edu/RePEc/eej/Archive/Volume32/V32N2P205_220.pdf
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Bibliographic Info

Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

Volume (Year): 32 (2006)
Issue (Month): 2 (Spring)
Pages: 205-220

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Handle: RePEc:eej:eeconj:v:32:y:2006:i:2:p:205-220

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  1. David Aschauer, 1988. "Is government spending stimulative?," Staff Memoranda, Federal Reserve Bank of Chicago 88-3, Federal Reserve Bank of Chicago.
  2. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, Econometric Society, vol. 49(4), pages 1057-72, June.
  3. KH Zhang, 2001. "Does Foreign Direct Investment Promote Economic Growth? Evidence From East Asia And Latin America," Contemporary Economic Policy, Western Economic Association International, Western Economic Association International, vol. 19(2), pages 175-185, 04.
  4. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 12(2-3), pages 231-254.
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  7. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  8. Joshua Greene & Delano Villanueva, 1991. "Private Investment in Developing Countries: An Empirical Analysis," IMF Staff Papers, Palgrave Macmillan, vol. 38(1), pages 33-58, March.
  9. Teitel, Simon & Colman Sercovich, Francisco, 1984. "Latin America," World Development, Elsevier, Elsevier, vol. 12(5-6), pages 645-660.
  10. Meller, Patricio, 1993. "A review of Chilean privatization experience," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 33(Supplemen), pages 95-112.
  11. W. Robert & J. Alexander, 1994. "The investment-output ratio in growth regressions," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 1(5), pages 74-76.
  12. Luiz de Mello, 1997. "Foreign direct investment in developing countries and growth: A selective survey," Journal of Development Studies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 34(1), pages 1-34.
  13. Nader Nazmi & Miguel D. Ramirez, 1997. "Public And Private Investment And Economic Growth In Mexico," Contemporary Economic Policy, Western Economic Association International, Western Economic Association International, vol. 15(1), pages 65-75, 01.
  14. MD. Ramirez, 2000. "Public capital formation and labor productivity growth in Chile," Contemporary Economic Policy, Western Economic Association International, Western Economic Association International, vol. 18(2), pages 159-169, 04.
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Cited by:
  1. Jose Romero, 2012. "Inversión extranjera directa y crecimiento económico en México: 1940-2010," Serie documentos de trabajo del Centro de Estudios Económicos, El Colegio de México, Centro de Estudios Económicos 2012-12, El Colegio de México, Centro de Estudios Económicos.

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