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Foreign direct investment and economic growth: Exploring the transmission channels

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  • Makiela, Kamil
  • Ouattara, Bazoumana

Abstract

The impact of foreign direct investment (FDI) on growth remains a thorny question for researchers and policy makers. At the theoretical level it has been argued that FDI is growth enhancing. However, existing empirical studies have left researchers and policy makers perplexed as these studies do not appear to find a strong relationship between the two variables. This paper departs from the existing literature by exploring the transmission channels from FDI to growth. The results, based on a sample of developed and developing countries over the period 1970–2007, conclusively reveal that FDI affects growth via inputs accumulation but not the total factor productivity growth channel. In other words, our results suggest that factors other than FDI may have contributed to the increase in productivity witnessed in developing countries in recent decades.

Suggested Citation

  • Makiela, Kamil & Ouattara, Bazoumana, 2018. "Foreign direct investment and economic growth: Exploring the transmission channels," Economic Modelling, Elsevier, vol. 72(C), pages 296-305.
  • Handle: RePEc:eee:ecmode:v:72:y:2018:i:c:p:296-305
    DOI: 10.1016/j.econmod.2018.02.007
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    More about this item

    Keywords

    Foreign direct investment; Economic growth; Total factor productivity; Bayesian inference; Dynamic panel data;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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