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Does Foreign Direct Investment Promote Economic Growth? Evidence from a Threshold Regression Analysis

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  • Wu Jyun-Yi

    () (Department of Economics, National Central University)

  • Hsu Chih-Chiang

    () (Department of Economics, National Central University)

Abstract

Using threshold regression techniques developed by Caner and Hansen(2004),this paper examines whether the effect of foreign direct investment (FDI) on economic growth is dependent upon different absorptive capacities. There are three absorptive capacities, namely, initial GDP, human capital and the volume of trade, that are used as threshold variables in our paper. The empirical analysis shows that FDI alone plays an ambiguous role in contributing to economic growth based on a sample of 62 countries covering the period from 1975 through 2000. Under the threshold regression, we find that initial GDP and human capital are important factors in explaining FDI. FDI is found to have a positive and significant impact on growth when host countries have better levels of initial GDP and human capital.

Suggested Citation

  • Wu Jyun-Yi & Hsu Chih-Chiang, 2008. "Does Foreign Direct Investment Promote Economic Growth? Evidence from a Threshold Regression Analysis," Economics Bulletin, AccessEcon, vol. 15(12), pages 1-10.
  • Handle: RePEc:ebl:ecbull:eb-08o10014
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    References listed on IDEAS

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    5. Ross Levine & Norman Loayza & Thorsten Beck, 2002. "Financial Intermediation and Growth: Causality and Causes," Central Banking, Analysis, and Economic Policies Book Series,in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.), Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 2, pages 031-084 Central Bank of Chile.
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    Citations

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    Cited by:

    1. Shu-Chen Chang, 2010. "Estimating Relationships Among FDI Inflow, Domestic Capital, and Economic Growth Using the Threshold Error Correction Approach," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 46(1), pages 6-15, January.
    2. Shu-Chen Chang, 2010. "Estimating Relationships Among FDI Inflow, Domestic Capital, and Economic Growth Using the Threshold Error Correction Approach," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 46(1), pages 6-15, January.
    3. Sionfou Seydou Coulibaly & Lewis Landry Gakpa, 2017. "The Role of Property Rights in the Relationship between Openness to International Capital Flows and Economic Growth in Sub-Saharan Africa Countries: An Estimate from Non-Stationary Panel Data," Research Papers RP_320, African Economic Research Consortium.
    4. Munyanyi, Musharavati Ephraim, 2017. "Foreign direct investment and economic growth nexus in Zimbabwe: A cointegration approach," MPRA Paper 77946, University Library of Munich, Germany.
    5. Jeffrey A. Edwards & Alfredo A. Romero & Zagros Madjd-Sadjadi, 2016. "Foreign direct investment, economic growth, and volatility: a useful model for policymakers," Empirical Economics, Springer, pages 681-705.
    6. Juan Kania-Morales & Robert Mróz, 2014. "Relationship between foreign direct investment stock and foreign portfolio investment stock. Do they really matter for GDP in Poland, Germany, and Great Britain?," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 38.
    7. 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.
    8. Ji Uk Kim, 2008. "Economic Growth and Technology Diffusion in Developing Countries," Korean Economic Review, Korean Economic Association, pages 413-424.
    9. Hinh T. Dinh & Thomas G. Rawski & Ali Zafar & Lihong Wang & Eleonora Mavroeidi, 2013. "Tales from the Development Frontier : How China and Other Countries Harness Light Manufacturing to Create Jobs and Prosperity," World Bank Publications, The World Bank, number 15763.

    More about this item

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • F2 - International Economics - - International Factor Movements and International Business

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