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Is Foreign Direct Investment Good for Growth? Evidence from Sectoral Analysis of China and Vietnam

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Author Info
Tam B. Vu () (College of Business and Economics, University of Hawaii at Hilo)
Byron Gangnes () (Department of Economics, University of Hawaii at Manoa)
Ilan Noy () (Department of Economics, University of Hawaii at Manoa)

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Abstract

We estimate the impact of FDI on growth using sectoral data for FDI inflows to China and Vietnam. Previous empirical studies, using either cross-country growth regressions or firm-level micro-econometric analysis, fail to reach a consensus. Our paper is the first to use sectoral FDI inflow data to evaluate the sector-specific impact of FDI on growth. Our results show that, for the two developing-transition economies we examine, FDI has a statistically-significant positive effect on economic growth operating directly and through its interaction with labor. Intriguingly, we find the effects seem to be very different across economic sectors, with almost all the beneficial impact limited to industrial sector. Other sectors appear to gain very little growth benefit from sector-specific FDI.

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File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_08-1.pdf
File Format: application/pdf
File Function: First version, 2008
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Paper provided by University of Hawaii at Manoa, Department of Economics in its series Working Papers with number 200801.

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Length: 37 pages
Date of creation: 01 Jan 2008
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Handle: RePEc:hai:wpaper:200801

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Related research
Keywords: Foreign direct investment; growth; China; Vietnam;

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Find related papers by JEL classification:
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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Cited by:
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  1. Abdul Khaliq & Ilan Noy, 2007. "Foreign Direct Investment and Economic Growth: Empirical Evidence from Sectoral Data in Indonesia," Working Papers 200726, University of Hawaii at Manoa, Department of Economics. [Downloadable!]
  2. Nguyen, Ngoc Anh & Nguyen, Thang, 2007. "Foreign direct investment in Vietnam: An overview and analysis the determinants of spatial distribution across provinces," MPRA Paper 1921, University Library of Munich, Germany. [Downloadable!]
  3. Ilan Noy & Tam B. Vu, 2007. "Capital Account Liberalization and Foreign Direct Investment," Working Papers 200708, University of Hawaii at Manoa, Department of Economics. [Downloadable!]
    Other versions:
  4. Tam Bang Vu & Ilan Noy, 2007. "Sectoral Analysis of Foreign Investment and Growth In the Developed Countries," Working Papers 200725, University of Hawaii at Manoa, Department of Economics. [Downloadable!]
  5. Nguyen, Anh Ngoc & Nguyen, Thang & Le, Dang Trung & Pham, Quang Ngoc & Nguyen, Dinh Chuc & Nguyen, Duc Nhat, 2008. "Foreign direct investment in Vietnam: Is there any evidence of technological spillover effects," MPRA Paper 7273, University Library of Munich, Germany. [Downloadable!]
    Other versions:
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