IDEAS home Printed from https://ideas.repec.org/a/eej/eeconj/v32y2006i2p205-220.html
   My bibliography  Save this article

Does Foreign Direct Investment Enhance Labor Productivity Growth in Chile? A Cointegration Analysis

Author

Listed:
  • Miguel D. Ramirez

    (Department of Economics, Trinity College)

Abstract

This paper examines the impact of foreign direct investment (FDI) on labor productivity growth in Chile. After a critical review of the Chilean experience with FDI flows during the 1990s, the paper presents a simple growth model that explicitly incorporates any positive (negative) externalities generated by additions to the foreign capital stock. Using cointegration analysis, the article estimates a dynamic labor productivity function for the 1960-2000 period that includes, inter alia, the impact of changes in the stock of foreign and public capital. The error correction model (ECM) estimates suggest that increases in both public (lagged) and foreign (lagged) investment have a positive and economically significant effect on the rate of labor productivity growth. The error correction terms of the estimated model are negative and statistically significant, thus suggesting that deviations of actual labor productivity from its long-run value are corrected in subsequent periods. The article also reports historical simulations from the estimated ECMs that show that the models are able to track the movements in the actual series. Finally, the paper offers some cautionary observations with regard to the role of FDI flows in promoting capital formation and labor productivity growth in Chile.

Suggested Citation

  • Miguel D. Ramirez, 2006. "Does Foreign Direct Investment Enhance Labor Productivity Growth in Chile? A Cointegration Analysis," Eastern Economic Journal, Eastern Economic Association, vol. 32(2), pages 205-220, Spring.
    • Handle: RePEc:eej:eeconj:v:32:y:2006:i:2:p:205-220
    as

    Download full text from publisher

    File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume32/V32N2P205_220.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. MD. Ramirez, 2000. "Public capital formation and labor productivity growth in Chile," Contemporary Economic Policy, Western Economic Association International, vol. 18(2), pages 159-169, April.
    2. Luiz R. de Mello Jr., 1997. "Foreign Direct Investment in Developing Countries: A Selective Survey," Studies in Economics 9701, School of Economics, University of Kent.
    3. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
    4. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    5. Joshua Greene & Delano Villanueva, 1991. "Private Investment in Developing Countries: An Empirical Analysis," IMF Staff Papers, Palgrave Macmillan, vol. 38(1), pages 33-58, March.
    6. Meller, Patricio, 1993. "A review of Chilean privatization experience," The Quarterly Review of Economics and Finance, Elsevier, vol. 33(Supplemen), pages 95-112.
    7. Cardoso, Eliana, 1993. "Private Investment in Latin America," Economic Development and Cultural Change, University of Chicago Press, vol. 41(4), pages 833-848, July.
    8. David Alan Aschauer, 1990. "Is Government Spending Stimulative?," Contemporary Economic Policy, Western Economic Association International, vol. 8(4), pages 30-46, October.
    9. W. Robert & J. Alexander, 1994. "The investment-output ratio in growth regressions," Applied Economics Letters, Taylor & Francis Journals, vol. 1(5), pages 74-76.
    10. Barry P. Bosworth & Susan M. Collins, 1999. "Capital Flows to Developing Economies: Implications for Saving and Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(1), pages 143-180.
    11. Teitel, Simon & Colman Sercovich, Francisco, 1984. "Latin America," World Development, Elsevier, vol. 12(5-6), pages 645-660.
    12. 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.
    13. KH Zhang, 2001. "Does Foreign Direct Investment Promote Economic Growth? Evidence From East Asia And Latin America," Contemporary Economic Policy, Western Economic Association International, vol. 19(2), pages 175-185, April.
    14. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    15. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
    16. Nader Nazmi & Miguel D. Ramirez, 1997. "Public And Private Investment And Economic Growth In Mexico," Contemporary Economic Policy, Western Economic Association International, vol. 15(1), pages 65-75, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jose Romero, 2012. "Inversión extranjera directa y crecimiento económico en México: 1940-2010," Serie documentos de trabajo del Centro de Estudios Económicos 2012-12, El Colegio de México, Centro de Estudios Económicos.
    2. Ebert, Laura & La Menza, Tania, 2015. "Chile, copper and resource revenue: A holistic approach to assessing commodity dependence," Resources Policy, Elsevier, vol. 43(C), pages 101-111.
    3. Mulder, Nanno, 2009. "Weak links between exports and economic growth in Latin America and the Caribbean," Comercio Internacional 4436, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    4. Van Thi Cam Ha & Mark Holmes & Tinh Doan & Gazi Hassan, 2021. "Does foreign investment enhance domestic manufacturing firms’ labour productivity? Evidence from a quantile regression approach," Economic Change and Restructuring, Springer, vol. 54(3), pages 637-654, August.
    5. Beatriz Cuadrado-Ballesteros & Noemí Peña-Miguel, 2018. "The Socioeconomic Consequences of Privatization: An Empirical Analysis for Europe," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 139(1), pages 163-183, August.
    6. Shravani Sharma & Supran Kumar Sharma, 2019. "Evidence on Relationship Between Economic Growth and Financial Development of Selected Northern Indian States: Using Panel VEC Approach," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 17(4), pages 869-884, December.
    7. Özcan Karahan, 2016. "Technology Spillover from Foreign Direct Investment in Turkey," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 9(3), pages 7-12, December.
    8. Oziengbe Scott Aigheyisi, 2019. "Import Competition And Labour Productivity In Nigeria," Oradea Journal of Business and Economics, University of Oradea, Faculty of Economics, vol. 4(2), pages 26-34, September.
    9. Ayesha Serfraz, 2018. "Analyzing Short-Run and Long-Run Causality between FDI Inflows, Labor Productivity and Education in Pakistan," Asian Journal of Economics and Empirical Research, Asian Online Journal Publishing Group, vol. 5(1), pages 36-59.
    10. Mehmet Akyol & Emrullah Mete, 2021. "The Relationship Between Labor Productivity, Exports, and Foreign Direct Investment for Transition Economies," Journal of Economic Policy Researches, Istanbul University, Faculty of Economics, vol. 8(2), pages 155-171, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Miguel Ramirez, 2002. "Public capital formation and labor productivity growth in Mexico," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 30(4), pages 366-379, December.
    2. Ramirez, Miguel D., 2006. "Is foreign direct investment beneficial for Mexico? An empirical analysis, 1960-2001," World Development, Elsevier, vol. 34(5), pages 802-817, May.
    3. Miguel Ramirez, 2004. "Is public infrastructure spending productive in the Mexican case? A vector error correction analysis," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 13(2), pages 159-178.
    4. Ramirez, Miguel D., 2008. "Are Foreign and Public Capital Productive in the Mexican Case? A Panel Unit Root and Panel Cointegration Analysis," Working Papers 49, Yale University, Department of Economics.
    5. Ramirez, M.D., 2009. "Public Capital Formation and Labor Productivity Growth in Argentina," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 9(1).
    6. Miguel Ramirez, 2013. "Is Foreign Direct Investment Beneficial for Mexico? A Cointegration Analysis, 1958-2010," Working Papers 1311, Trinity College, Department of Economics.
    7. Miguel Ramirez & Zsófia Kőműves, 2014. "Economic Infrastructure, Private Capital Formation, and FDI Inflows to Hungary: A Unit Root and Cointegration Analysis with Structural Breaks," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 42(4), pages 367-382, December.
    8. Vinish Kathuria, 2019. "Growth and Investment: Testing for the Relationship for South Asian Countries," Millennial Asia, , vol. 10(3), pages 337-371, December.
    9. SBIA, Rashid & Al Rousan, Sahel, 2015. "Does Financial Development Induce Economic Growth in UAE? The Role of Foreign Direct Investment and Capitalization," MPRA Paper 64599, University Library of Munich, Germany.
    10. Akinlo, A. Enisan, 2004. "Foreign direct investment and growth in Nigeria: An empirical investigation," Journal of Policy Modeling, Elsevier, vol. 26(5), pages 627-639, July.
    11. Miguel D. Ramirez, 2006. "Economic And Institutional Determinants Of Foreign Direct Investment In Chile: A Time‐Series Analysis, 1960–2001," Contemporary Economic Policy, Western Economic Association International, vol. 24(3), pages 459-471, July.
    12. Tan, Bee Wah & Tang, Chor Foon, 2011. "The dynamic relationship between private domestic investment, the user cost of capital, and economic growth in Malaysia," MPRA Paper 27964, University Library of Munich, Germany.
    13. MD. Ramirez, 2000. "Public capital formation and labor productivity growth in Chile," Contemporary Economic Policy, Western Economic Association International, vol. 18(2), pages 159-169, April.
    14. Mughal, Mazhar, 2008. "Boon or bane- role of FDI in the economic growth of Pakistan," MPRA Paper 16468, University Library of Munich, Germany.
    15. Mohammed Ershad Hussain & Mahfuzul Haque, 2016. "Foreign Direct Investment, Trade, and Economic Growth: An Empirical Analysis of Bangladesh," Economies, MDPI, vol. 4(2), pages 1-14, April.
    16. de Meulemeester, Jean-Luc & Rochat, Denis, 1995. "A causality analysis of the link between higher education and economic development," Economics of Education Review, Elsevier, vol. 14(4), pages 351-361, December.
    17. Fedderke, J.W. & Bogetic, Z., 2009. "Infrastructure and Growth in South Africa: Direct and Indirect Productivity Impacts of 19 Infrastructure Measures," World Development, Elsevier, vol. 37(9), pages 1522-1539, September.
    18. Victor Ukpolo, 1997. "Wage Growth and Inflation in the United States: Further Evidence from Johansen's Cointegration Approach," The American Economist, Sage Publications, vol. 41(1), pages 53-58, March.
    19. S. Gurcan Gulen, 1996. "Is OPEC a Cartel? Evidence from Cointegration and Causality Tests," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 43-57.
    20. Ericsson, Neil R., 1992. "Cointegration, exogeneity, and policy analysis: An overview," Journal of Policy Modeling, Elsevier, vol. 14(3), pages 251-280, June.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eej:eeconj:v:32:y:2006:i:2:p:205-220. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Victor Matheson, College of the Holy Cross (email available below). General contact details of provider: https://edirc.repec.org/data/eeaa1ea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.