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In search of FDI-led growth in developing countries

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Author Info

  • Dierk Herzer

    ()
    (Universität Frankfurt, Universität Göttingen)

  • Stephan Klasen

    ()
    (Universität Göttingen)

  • Felicitas Nowak-Lehmann D.

    ()
    (Universität Göttingen)

Abstract

This paper challenges the widespread belief that FDI generally has a positive impact on economic growth in developing countries. It addresses the limitations of the existing literature and re-examines the FDI-led growth hypothesis for 28 developing countries using cointegration techniques on a country-by-country basis. The paper finds that in the vast majority of countries FDI has no statistically significant long-run impact on growth. In very few cases, FDI indeed contributes to economic growth both in the long and the short run. But for some countries, there is also evidence of growth-limiting effects of FDI in the short or long term. Furthermore, our results indicate that there is no clear association between the growth impact of FDI and the level of per capita income, the level of education, the degree of openness, and the level of financial market development in developing countries.

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Bibliographic Info

Paper provided by Ibero-America Institute for Economic Research in its series Ibero America Institute for Econ. Research (IAI) Discussion Papers with number 150.

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Length: 42 pages
Date of creation: 11 Jul 2006
Date of revision:
Handle: RePEc:got:iaidps:150

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Keywords: FDI; Growth; Developing countries; Cointegration;

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References

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Citations

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Cited by:
  1. Nabila Asghar & Samia Nasreen & Hafeez ur Rehman, 2012. "Relationship between FDI and Economic Growth in Selected Asian Countries: A Panel Data Analysis," Review of Economics & Finance, Better Advances Press, Canada, vol. 2, pages 84-96, February.
  2. Chew Ging LEE, 2010. "The Nexus of Outward Foreign Direct Investment and Income: Evidence from Singapore," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 10(1).
  3. Konstantin M. Wacker, 2011. "The Impact of Foreign Direct Investment on Developing Countries’ Terms of Trade," Working Paper Series UNU-WIDER Working Paper W, World Institute for Development Economic Research (UNU-WIDER).
  4. Carike Claassen & Elsabé Loots & Henri Bezuidenhout, 2011. "Chinese Foreign Direct Investment in Africa," Working Papers 261, Economic Research Southern Africa.
  5. Dennis Reinhardt, 2010. "Into the Allocation Puzzle - A sectoral analysis," IHEID Working Papers 14-2010, Economics Section, The Graduate Institute of International Studies.
  6. Faruk Gürsoy & Hüseyin Kalyoncu, 2012. "Foreign Direct Investment and Growth Relationship in Georgia," International Journal of Economics and Financial Issues, Econjournals, vol. 2(3), pages 267-271.
  7. Konstantin M. Wacker, 2011. "Do multinationals beat down developing countries' export prices? The impact of FDI on net barter terms of trade," Ibero America Institute for Econ. Research (IAI) Discussion Papers 211, Ibero-America Institute for Economic Research.

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