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Transition to FDI openness

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  • Ellen R. McGrattan

Abstract

Empirical studies quantifying the benefits of increased foreign direct investment (FDI) have been unable to provide conclusive evidence of a positive impact on host country’s economic performance. I show that the lack of robust evidence is not inconsistent with theory, even if the eventual gains to FDI are large, if restrictions on FDI are lifted only gradually and part of FDI is intangible investment. Anticipation of future increases in FDI can result in large shifts in patterns of domestic investment and employment. Furthermore, since intangible investments are expensed, both gross domestic product (GDP) and gross national product (GNP) are low during periods of abnormally high FDI investment.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Minneapolis in its series Working Papers with number 671.

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Date of creation: 2009
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Handle: RePEc:fip:fedmwp:671

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Keywords: Gross domestic product ; Gross national product;

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  1. Kosuke Aoki & Gianluca Benigno & Nobuhiro Kiyotaki, 2010. "Adjusting to Capital Account Liberalization," CEP Discussion Papers dp1014, Centre for Economic Performance, LSE.
  2. Kosuke Aoki & Gianluca Benigno & Nobuhiro Kiyotaki, 2006. "Adjusting to capital liberalization," LSE Research Online Documents on Economics 3167, London School of Economics and Political Science, LSE Library.
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Cited by:
  1. Thomas J. Holmes & Ellen R. McGrattan & Edward C. Prescott, 2011. "Technology capital transfer," Working Papers 687, Federal Reserve Bank of Minneapolis.

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