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Foreign direct investment: flows, volatility and growth in developing countries

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  • Lensink, R.
  • Morrissey, O.

    (Groningen University)

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 FDI has a positive effect on growth whereas volatility of FDI has a negative impact. The evidence for a positive effect of FDI is not sensitive to which other explanatory variables are included. In particular, it is not conditional on the level of human capital (as found in some previous studies). There is a suggestion that it is not the volatility of FDI per se that retards growth but that such volatility captures the growth-retarding effects of unobserved variables.

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File URL: http://irs.ub.rug.nl/ppn/239757564
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Bibliographic Info

Paper provided by University of Groningen, Research Institute SOM (Systems, Organisations and Management) in its series Research Report with number 01E16.

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Date of creation: 2001
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Handle: RePEc:dgr:rugsom:01e16

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  1. Aitken, B. & Hanson, G.H. & Harrison, A.E., 1994. "Spillovers, Foreign Investment and Export Behavior," Papers, Columbia - Graduate School of Business 95-06, Columbia - Graduate School of Business.
  2. Xavier Sala-i-Martin, 1996. "Transfers, Social Safety Nets, and Economic Growth," IMF Working Papers 96/40, International Monetary Fund.
  3. Robert J. Barro, 1995. "Inflation and Economic Growth," NBER Working Papers 5326, National Bureau of Economic Research, Inc.
  4. Balasubramanyam, V N & Salisu, M & Sapsford, David, 1996. "Foreign Direct Investment and Growth in EP and IS Countries," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 106(434), pages 92-105, January.
  5. Kamal Saggi, 2002. "Trade, Foreign Direct Investment, and International Technology Transfer: A Survey," World Bank Research Observer, World Bank Group, World Bank Group, vol. 17(2), pages 191-235, September.
  6. Patrick GUILLAUMONT & Lisa CHAUVET, 1999. "Aid and Performance: A Reassessment," Working Papers 199910, CERDI.
  7. Martin, Philippe & Rogers, Carol Ann, 1995. "Stabilization Policy, Learning by Doing, and Economic Growth," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1130, C.E.P.R. Discussion Papers.
  8. Abigail Barr, 1995. "The missing factor: entrepreneurial networks, enterprises and economic growth in Ghana," CSAE Working Paper Series 1995-11, Centre for the Study of African Economies, University of Oxford.
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Cited by:
  1. Khaled Elmawazini & Gamal Atallah & Sonny Nwankwo & Yazid Dissou, 2013. "US Foreign Affiliates, Technology Diffusion and Host Country Human Development: Human Development Index versus Human Capital," Industry and Innovation, Taylor & Francis Journals, Taylor & Francis Journals, vol. 20(1), pages 69-91, January.
  2. Oluwatosin Adeniyi & Festus O. Egwaikhide & Abimbola Oyinlola & Olusegun Omisakin, 2012. "Foreign Direct Investment, Economic Growth and Financial Sector Development in Small Open Developing Economies," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, Queensland University of Technology (QUT), School of Economics and Finance, vol. 42(1), pages 105-127, March.
  3. Acaravci, Ali & Ozturk, Ilhan, 2012. "Foreign Direct Investment, Export and Economic Growth: Empirical Evidence from New EU Countries," Journal for Economic Forecasting, Institute for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 52-67, June.
  4. Nauro F. Campos & Yuko Kinoshita, 2002. "Foreign Direct Investment as Technology Transferred: Some Panel Evidence from the Transition Economies," William Davidson Institute Working Papers Series 438, William Davidson Institute at the University of Michigan.
  5. Andrew Sumner & Meera Tiwari, 2005. "Poverty and economic policy: what happens when researchers disagree?," Journal of International Development, John Wiley & Sons, Ltd., vol. 17(6), pages 791-801.
  6. Bethuel Kinyanjui Kinuthia, 2009. "Industrialization in Malaysia: Changing role of Government and Foreign Firms," DEGIT Conference Papers, DEGIT, Dynamics, Economic Growth, and International Trade c014_049, DEGIT, Dynamics, Economic Growth, and International Trade.
  7. Andrew Sumner, 2004. "Why are we still arguing about globalization?," Journal of International Development, John Wiley & Sons, Ltd., vol. 16(7), pages 1015-1022.
  8. Andrew Sumner, 2006. "Why Are We Still Arguing about Globalisation," Working Papers id:538, eSocialSciences.
  9. Laurent Gheeraert & Joffrey Malek Mansour, 2005. "On the impact of private capital flows on economic growth and development," Working Papers CEB, ULB -- Universite Libre de Bruxelles 05-003.RS, ULB -- Universite Libre de Bruxelles.
  10. Merlevede, Bruno & Schoors, Koen, 2005. "On the Speed of Economic Reform: Tale of the Tortoise and the Hare," BOFIT Discussion Papers, Bank of Finland, Institute for Economies in Transition 11/2005, Bank of Finland, Institute for Economies in Transition.
  11. Sahu, Pritish Kumar, 2010. "FDI, wage inequality and employment in emerging economies: recent evidence from Indian manufacturing," MPRA Paper 35149, University Library of Munich, Germany.

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