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The Positive Causal Impact of Foreign Direct Investment on Productivity: A Not So Typical Relationship

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  • Rodolphe Desbordes

    ()
    (Department of Economics, University of Strathclyde)

  • Vincenzo Verardi

    ()
    (University of Namur (CRED) and Université Libre de Bruxelles (ECARES and CKE).)

Abstract

Previous research has argued that foreign direct investment (FDI) exerts a positive and causal impact on the productivity of the recipient countries. However, we find that there is little macroeconomic evidence that FDI fosters productivity growth in recipient countries, including in those with high absorptive capacity, once we use an instrumental variables (IV) estimator robust to outliers.

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File URL: http://www.strath.ac.uk/media/departments/economics/researchdiscussionpapers/2011/11-06_Final.pdf
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Bibliographic Info

Paper provided by University of Strathclyde Business School, Department of Economics in its series Working Papers with number 1106.

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Length: 46 pages
Date of creation: Mar 2011
Date of revision:
Handle: RePEc:str:wpaper:1106

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Keywords: Foreign Direct Investment; Productivity; Robust Regression.;

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  1. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
  2. Caselli, Francesco & Esquivel, Gerardo & Lefort, Fernando, 1996. " Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics," Journal of Economic Growth, Springer, vol. 1(3), pages 363-89, September.
  3. Eswar S. Prasad & Raghuram G. Rajan & Arvind Subramanian, 2007. "Foreign Capital and Economic Growth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 38(1), pages 153-230.
  4. Ayhan Kose, M. & Prasad, Eswar S. & Terrones, Marco E., 2009. "Does openness to international financial flows raise productivity growth?," Journal of International Money and Finance, Elsevier, vol. 28(4), pages 554-580, June.
  5. Jürgen Bitzer & Holger Görg, 2008. "Foreign Direct Investment, Competition and Industry Performance," Kiel Working Papers 1416, Kiel Institute for the World Economy.
  6. Ann E. Harrison & Brian J. Aitken, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, vol. 89(3), pages 605-618, June.
  7. Christophe Croux & Geert Dhaene & Dirk Hoorelbeke, 2003. "Robust Standard Errors for Robust Estimators," Center for Economic Studies - Discussion papers ces0316, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
  8. M. Ayhan Kose & Kenneth Rogoff & Eswar Prasad & Shang-Jin Wei, 2003. "Effects of Financial Globalization on Developing Countries," IMF Occasional Papers 220, International Monetary Fund.
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