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Can FDI promote export diversification and sophistication of host countries? : dynamic panel system GMM analysis

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  • Iwamoto, Manabu
  • Nabeshima, Kaoru

Abstract

Recent trade literature highlights the importance of export diversification and upgrading in fostering faster and sustainable economic growth. This study investigates the impact of FDI inflow and stock on the level of export diversification and sophistication in host country's export baskets. By utilizing the dynamic panel data model, we find that the five-year lagged FDI inflow correlates positively with both export diversification and sophistication, and FDI stock makes the positive contribution to export sophistication. These findings provide support for the possibility of successful capabilities transfer to and building by local firms. We also find that these positive impacts of FDI exist only in developing countries.

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File URL: http://ir.ide.go.jp/dspace/bitstream/2344/1139/1/ARRIDE_Discussion_No.347_iwamoto.pdf
File Function: First version, 2012
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Bibliographic Info

Paper provided by Institute of Developing Economies, Japan External Trade Organization(JETRO) in its series IDE Discussion Papers with number 347.

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Date of creation: Mar 2012
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Publication status: Published in IDE Discussion Paper. No. 347. 2012.3
Handle: RePEc:jet:dpaper:dpaper347

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Related research

Keywords: Developing countries; Foreign investments; International trade; FDI; Export diversification; Export sophistication; Capabilities transfer;

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