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FDI, openness and income

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  • Ting Gao
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    Abstract

    This is an empirical study of the impact of foreign direct investment (FDI) on income. It presents cross-country evidence that inward FDI is positively correlated with income. In addition, an instrument for FDI is constructed to address the issue of endogeneity. The results show that instrumental-variables (IV) estimates of the impact of FDI on income are positive and greater than OLS estimates, similar to the findings on trade in Frankel and Romer (1999). The evidence in this paper suggests that inward FDI contributes to higher income, and favours the argument of Irwin and Tervio (2002) that trade openness is subject to measurement error - in particular, trade is an imperfect proxy for many income-enhancing interactions between countries.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/0963819042000240048
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    Bibliographic Info

    Article provided by Taylor and Francis Journals in its journal The Journal of International Trade & Economic Development.

    Volume (Year): 13 (2004)
    Issue (Month): 3 ()
    Pages: 305-323

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    Handle: RePEc:taf:jitecd:v:13:y:2004:i:3:p:305-323

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    Related research

    Keywords: Foreign direct investment; openness; income; growth; OLS; instrumental variables;

    References

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    1. Görg, Holger & Strobl, Eric & Walsh, Frank, 2007. "Why Do Foreign-Owned Firms Pay More? The Role of On-the-Job Training," CEPR Discussion Papers 6171, C.E.P.R. Discussion Papers.
    2. Magnus Blomstrom & Robert E. Lipsey & Mario Zejan, 1994. "What Explains Developing Country Growth?," NBER Working Papers 4132, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Polasek, Wolfgang & Sellner, Richard, 2011. "Does Globalization Affect Regional Growth? Evidence for NUTS-2 Regions in EU-27," Economics Series 266, Institute for Advanced Studies.
    2. Wolfgang Polasek & Richard Sellner, 2013. "The Does Globalization Affect Regional Growth? Evidence for NUTS-2 Regions in EU-27," DANUBE: Law and Economics Review, European Association Comenius - EACO, issue 1, pages 23-65, March.
    3. Muhammad Arshad Khan, 2007. "Foreign Direct Investment and Economic Growth: The Role of Domestic Financial Sector," PIDE-Working Papers 2007:18, Pakistan Institute of Development Economics.

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