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The Long-Run Relationship between Outward FDI and Total Factor Productivity: Evidence for Developing Countries

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  • Dierk Herzer

    ()
    (Johann Wolfgang Goethe-University, Frankfurt am Main / Germany)

Abstract

This paper examines the long-run relationship between outward foreign direct investment (FDI) and total factor productivity for a sample of 33 developing countries over the period 1980-2005. Using panel cointegration techniques, we find that: (i) outward FDI has, on average, a positive long-run effect on total factor productivity in developing countries, (ii) increased factor productivity is both consequence and a cause of increased outward FDI, and (iii) there are large differences in the long-run effects of outward FDI on total factor productivity across countries. Cross-sectional regressions indicate that these cross-country differences in the productivity effects of outward FDI are significantly negatively related to cross-country differences in labor market regulation, whereas there is no statistically significant association between the productivity effects of outward FDI and the level of human capital, the level of financial development, or the degree of trade openness in the home country.

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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 199.

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Length: 38 pages
Date of creation: 16 Feb 2010
Date of revision:
Handle: RePEc:got:iaidps:199

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Keywords: Outward FDI; total factor productivity; developing countries; panel cointegration;

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Cited by:
  1. Aleksandra Parteka & Joanna Wolszczak-Derlacz, 2011. "Market Size, Competitiveness and Technological Frontier - the Impact of Trade Integration with the UE on Productivity in Polish Manufacturing Sectors," National Bank of Poland Working Papers 82, National Bank of Poland, Economic Institute.
  2. Daniel Sakyi & Jose Villaverde & Adolfo Maza & Krishna Reddy Chittedieonardo, 2012. "Trade Openness, Growth and Development: Evidence from Heterogeneous Panel Cointegration Analysis for Middle-Income Countries," REVISTA CUADERNOS DE ECONOMÍA, UN - RCE - CID.

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