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Efficiency externalities of trade and alternative forms of foreign investment in OECD countries

  • Krishna G. Iyer

    (Department of Applied and International Economics, Massey University, Palmerston North, New Zealand)

  • Alicia N. Rambaldi

    (School of Economics, Centre for Efficiency and Productivity Analysis, University of Queensland, Brisbane, Australia)

  • Kam Ki Tang

    (School of Economics, Centre for Efficiency and Productivity Analysis, University of Queensland, Brisbane, Australia)

The literature on the spillover effects of trade and inflows of foreign direct investment (FDI) has concentrated on technological externalities. Little effort has been directed towards identifying their efficiency externalities. This paper measures the efficiency externalities of trade and various forms of foreign investment for a sample of 20 OECD countries between 1982 and 2000 using a stochastic frontier approach. Trade and all foreign investment inflows are found to enhance efficiency, whereas outflows of FDI are found to exacerbate inefficiency. The efficiency externalities from foreign investment are contingent on the absorptive capacity of the host economies. Copyright © 2008 John Wiley & Sons, Ltd.

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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 23 (2008)
Issue (Month): 6 ()
Pages: 749-766

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Handle: RePEc:jae:japmet:v:23:y:2008:i:6:p:749-766
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