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In search of FDI-led growth in developing countries

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  • Klasen, Stephan
  • Herzer, Dierk
  • Nowak-Lehmann D., Felicitas

Abstract

This paper challenges the widespread belief that FDI generally has a positive impact on economic growth in developing countries. It addresses the limitations of the existing literature and re-examines the FDI-led growth hypothesis for 28 developing countries using cointegration techniques on a country-by-country basis. The paper finds that in the vast majority of countries FDI has no statistically significant long-run impact on growth. In very few cases, FDI indeed contributes to economic growth both in the long and the short run. But for some countries, there is also evidence of growth-limiting effects of FDI in the short or long term. Furthermore, our results indicate that there is no clear association between the growth impact of FDI and the level of per capita income, the level of education, the degree of openness, and the level of financial market development in developing countries. --

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Bibliographic Info

Paper provided by Verein für Socialpolitik, Research Committee Development Economics in its series Proceedings of the German Development Economics Conference, Göttingen 2007 with number 14.

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Date of creation: 2007
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Handle: RePEc:zbw:gdec07:6537

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Keywords: FDI; Growth; Developing countries; Cointegration;

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Cited by:
  1. Faruk Gürsoy & Hüseyin Kalyoncu, 2012. "Foreign Direct Investment and Growth Relationship in Georgia," International Journal of Economics and Financial Issues, Econjournals, vol. 2(3), pages 267-271.
  2. Konstantin M. Wacker, 2011. "The Impact of Foreign Direct Investment on Developing Countries’ Terms of Trade," Working Paper Series UNU-WIDER Working Paper W, World Institute for Development Economic Research (UNU-WIDER).
  3. Carike Claassen & Elsabé Loots & Henri Bezuidenhout, 2011. "Chinese Foreign Direct Investment in Africa," Working Papers 261, Economic Research Southern Africa.
  4. Konstantin M. Wacker, 2011. "Do multinationals beat down developing countries' export prices? The impact of FDI on net barter terms of trade," Ibero America Institute for Econ. Research (IAI) Discussion Papers 211, Ibero-America Institute for Economic Research.
  5. Dennis Reinhardt, 2010. "Into the Allocation Puzzle - A Sectoral Analysis," Working Papers 10.02, Swiss National Bank, Study Center Gerzensee.
  6. Nabila Asghar & Samia Nasreen & Hafeez ur Rehman, 2012. "Relationship between FDI and Economic Growth in Selected Asian Countries: A Panel Data Analysis," Review of Economics & Finance, Better Advances Press, Canada, vol. 2, pages 84-96, February.
  7. Chew Ging LEE, 2010. "The Nexus of Outward Foreign Direct Investment and Income: Evidence from Singapore," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 10(1).

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