We test the effect of foreign direct investment (FDI) on economic growth in a cross-country regression framework, utilizing data on FDI flows from industrial countries to 69 developing countries over the last two decades. Our results suggest that FDI is an important vehicle for the transfer of technology, contributing relatively more to growth than domestic investment. However, the higher productivity of FDI holds only when the host country has a minimum threshold stock of human capital. In addition, FDI has the effect of increasing total investment in the economy more than one for one, which suggests the predominance of complementarity effects with domestic firms.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
5057.
Length: Date of creation: Mar 1995 Date of revision: Publication status: published as Borensztein, E., J. De Gregorio and J. W. Lee. "How Does Foreign Direct Investment Affect Economic Growth?," Journal of International Economics, 1998, v45(1,Jun), 115-135. Handle: RePEc:nbr:nberwo:5057
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Find related papers by JEL classification: F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
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