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Foreign direct investment and total factor productivity growth: does distance from technology frontier matter?

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  • Subaran Roy

Abstract

We investigate the effects of the important channel of technology diffusion namely foreign direct investment (FDI) on the total factor productivity (TFP) growth. We contribute to the literature by empirically investigating the role of initial distance of a country from the technology frontier in determining the net effect of FDI on TFP growth. In this study, we find that the net effect of FDI on TFP growth decreases with the increase in distance. In order to take this research a step further, we implement the threshold regression technique to explore the nonlinearity associated with FDI. Our findings suggest that if initial distance of a country exceeds a threshold level then the leader will have a locomotive effect and can pull the followers along, while in the other situation there is a significant negative impact of FDI that increases with distance as a result of which the net benefit from FDI can be miniscule.

Suggested Citation

  • Subaran Roy, 2016. "Foreign direct investment and total factor productivity growth: does distance from technology frontier matter?," Global Business and Economics Review, Inderscience Enterprises Ltd, vol. 18(2), pages 151-176.
    • Handle: RePEc:ids:gbusec:v:18:y:2016:i:2:p:151-176
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    Citations

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    Cited by:

    1. Hu, Dengfeng & You, Kefei & Esiyok, Bulent, 2021. "Foreign direct investment among developing markets and its technological impact on host: Evidence from spatial analysis of Chinese investment in Africa," Technological Forecasting and Social Change, Elsevier, vol. 166(C).
    2. Liwiusz Wojciechowski, 2017. "Productivity gap: chance or obstacle in absorbing benefits from FDI in host country," Entrepreneurial Business and Economics Review, Centre for Strategic and International Entrepreneurship at the Cracow University of Economics., vol. 5(4), pages 153-170.
    3. Chen, Guo, 2013. "Health costs, factor productivity and foreign direct investment flows," Master's Theses and Plan B Papers 157717, University of Minnesota, Department of Applied Economics.

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