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Sectoral productivity and spillover effects of FDI in Latin America

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  • Gabriele Tondl
  • Jorge A. Fornero

Abstract

Empirical studies analysing productivity effects of inward FDI in Latin America (LA) are inconclusive. We argue that investigating aggregate FDI masks interesting effects of FDI that take place within and across sectors. Moreover, the potential of FDI to generate productivity effects differs across sectors. For these reasons and because sectoral FDI intensities vary significantly among LA countries and change over time, we investigate the productivity effects of FDI in eight different sectors including the primary sector, manufacturing and services. Besides FDI, sector-specific institutional factors, education and a sector‘s export share are considered as control variables. Given the likely endogeneity of variables, a GMM system estimation approach is used. The results indicate that positive productivity effects can be found in all sectors, although they may depend on specific conditions or are limited to a certain time period. Direct productivity effects are highest in the primary sector (agriculture, mining and petroleum production) and in financial services. In contrast, FDI in manufacturing and in transport and telecommunications generates productivity spillovers to nearly all other sectors.

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Bibliographic Info

Paper provided by FIW in its series FIW Working Paper series with number 053.

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Length: 32
Date of creation: Aug 2010
Date of revision:
Handle: RePEc:wsr:wpaper:y:2010:i:053

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Keywords: FDI; productivity; sector level; Latin America;

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References

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  1. L.R. de Mello Jr., 1996. "Foreign Direct Investment-Led Growth: Evidence from Time Series and Panel Data," Studies in Economics 9615, Department of Economics, University of Kent.
  2. Chang, Roberto & Kaltani, Linda & Loayza, Norman V., 2009. "Openness can be good for growth: The role of policy complementarities," Journal of Development Economics, Elsevier, vol. 90(1), pages 33-49, September.
  3. Patricia Prüfer & Gabriele Tondl, 2009. "The FDI-Growth Nexus in Latin America: The Role of Source Countries and Local Conditions," DEGIT Conference Papers c014_025, DEGIT, Dynamics, Economic Growth, and International Trade.
  4. Eduardo Levy Yeyati & Ugo Panizza & Ernesto H. Stein, 2003. "The Cyclical Nature of North-South FDI Flows," Research Department Publications 4317, Inter-American Development Bank, Research Department.
  5. Rivera-Batiz, Francisco L. & Rivera-Batiz, Luis A., 1990. "The effects of direct foreign investment in the presence of increasing returns due to specialization," Journal of Development Economics, Elsevier, vol. 34(1-2), pages 287-307, November.
  6. Jose De Gregorio, 1991. "Economic Growth in Latin America," IMF Working Papers 91/71, International Monetary Fund.
  7. Luiz de Mello, 1997. "Foreign direct investment in developing countries and growth: A selective survey," Journal of Development Studies, Taylor & Francis Journals, vol. 34(1), pages 1-34.
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Cited by:
  1. Prüfer, P. & Tondl, G., 2008. "The FDI-Growth Nexus in Latin America: The Role of Source Countries and Local Conditions," Discussion Paper 2008-61, Tilburg University, Center for Economic Research.
  2. Elisa Giuliani & Chiara Macchi, 2013. "Multinational Corporations’ Economic And Human Rights Impacts On Developing Countries: A Review And Research Agenda," Discussion Papers 2013/158, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.

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