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How does foreign direct investment affect economic growth?1

  • Borensztein, E.
  • De Gregorio, J.
  • Lee, J-W.

We test the effect of foreign direct investment (FDI) on economic growth in a cross-country regression framework, utilizing data on FDI flows from industrial countries to 69 developing countries over the last two decades. Our results suggest that FDI is an important vehicle for the transfer of technology, contributing relatively more to growth than domestic investment. However, the higher productivity of FDI holds only when the host country has a minimum threshold stock of human capital. In addition, FDI has the effect of increasing total investment in the economy more than one for one, which suggests the predominance of complementarity effects with domestic firms.

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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 45 (1998)
Issue (Month): 1 (June)
Pages: 115-135

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Handle: RePEc:eee:inecon:v:45:y:1998:i:1:p:115-135
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  1. Magnus Blomstrom & Robert E. Lipsey & Mario Zejan, 1992. "What Explains Developing Country Growth?," NBER Working Papers 4132, National Bureau of Economic Research, Inc.
  2. Sebastian Edwards, 1990. "Capital Flows, Foreign Direct Investment, and Debt-Equity Swaps in Developing Countries," NBER Working Papers 3497, National Bureau of Economic Research, Inc.
  3. Segerstrom, Paul S, 1991. "Innovation, Imitation, and Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 807-27, August.
  4. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
  5. Barro, Robert J. & Lee, Jong-Wha, 1993. "International comparisons of educational attainment," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 363-394, December.
  6. Benhabib, Jess & Spiegel, Mark M., 1994. "The role of human capital in economic development evidence from aggregate cross-country data," Journal of Monetary Economics, Elsevier, vol. 34(2), pages 143-173, October.
  7. Richard R. Nelson & Edmond S. Phelps, 1965. "Investment in Humans, Technological Diffusion and Economic Growth," Cowles Foundation Discussion Papers 189, Cowles Foundation for Research in Economics, Yale University.
  8. repec:oup:qjecon:v:92:y:1978:i:1:p:1-16 is not listed on IDEAS
  9. De Gregorio, Jose, 1992. "Economic growth in Latin America," Journal of Development Economics, Elsevier, vol. 39(1), pages 59-84, July.
  10. Wang, Jian-Ye, 1990. "Growth, technology transfer, and the long-run theory of international capital movements," Journal of International Economics, Elsevier, vol. 29(3-4), pages 255-271, November.
  11. Romer, Paul, 1993. "Idea gaps and object gaps in economic development," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 543-573, December.
  12. Barro, Robert J. & Lee, Jong-Wha, 1994. "Sources of economic growth," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 40(1), pages 1-46, June.
  13. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
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