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Post-Manichean Economics: Foreign Investment, State Capacity and Economic Development in Transition Economies

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  • Patrick Hamm
  • Lawrence King
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    Abstract

    This paper evaluates the role of foreign direct investment (FDI) in the transition from socialism to capitalism. Fixed-effects panel regressions indicate that FDI and domestic investment have an equal effect on growth in the first year of investment, but over time FDI is associated with greater growth than domestic investment. However, this positive impact of FDI turns out to be contingent upon the presence of a relatively well-functioning state in the host economy; in the absence of such a state, the net effect of FDI on economic development may be negative. All findings are robust in light of instrumental variable estimation, which is used to account for potential endogeneity problems.

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    File URL: http://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_201-250/WP227.pdf
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    Bibliographic Info

    Paper provided by Political Economy Research Institute, University of Massachusetts at Amherst in its series Working Papers with number wp227.

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    Date of creation: 2010
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    Handle: RePEc:uma:periwp:wp227

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    1. David E. Bloom & Jeffrey G. Williamson, 1997. "Demographic Transitions and Economic Miracles in Emerging Asia," NBER Working Papers 6268, National Bureau of Economic Research, Inc.
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    10. William Easterly & Ross Levine & David Roodman, 2003. "New Data, New doubts: A Comment on Burnside and Dollar's "Aid, Policies, and Growth" (2000)," NBER Working Papers 9846, National Bureau of Economic Research, Inc.
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    13. Vladimir Popov, 2001. "Reform Strategies and Economic Performance: The Russian Far East as Compared to Other Regions," Comparative Economic Studies, Palgrave Macmillan, vol. 43(4), pages 33-66, December.
    14. T. W. Swan, 1956. "ECONOMIC GROWTH and CAPITAL ACCUMULATION," The Economic Record, The Economic Society of Australia, vol. 32(2), pages 334-361, November.
    15. William Easterly, 2003. "Can Foreign Aid Buy Growth?," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 23-48, Summer.
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    Cited by:
    1. Cingolani, Luciana, 2013. "The State of State Capacity: a review of concepts, evidence and measures," MERIT Working Papers 053, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    2. Cingolani, Luciana & Thomsson, Kaj & de Crombrugghe, Denis, 2013. "Minding Weber more than ever? The impacts of State Capacity and Bureaucratic Autonomy on development goals," MERIT Working Papers 052, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).

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