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Foreign Direct Investment, Host Country Productivity And Export: The Case Of U.S. And Japanese Multinational Affiliates

  • Adugna Lemi


    (Department of Economics and Finance, College of Business, Winona State University)

The literature on the transfer of technology from FDI to host country firms is growing rapidly. Most of the studies find that there are positive spillover effects from FDI flow to host country firms in advanced economies. The result for the case of FDI recipient developing economies is mixed. The purpose of this study is to analyze the role that foreign direct investment from the U.S. and Japan plays in affecting developing countries¡¯ productivity, and export. Trade and production dataset by industrial groups and disaggregated U.S. and Japanese FDI data are used to empirically test presence of spillover effects on labor productivity and export. The results of the study show that positive productivity effects from U.S. and Japanese FDI firms are not empirically supported for the case of sample developing countries. The presence of FDI firms from all source countries and the number of U.S. total FDI and U.S. manufacturing FDI firms increase exports of host countries to the rest of the world. On the other hand, productivity is enhanced by foreign portfolio investment, availability of skilled manpower, capital intensity of industries and the number of bilateral investment treaties signed by host countries. Official development assistance and official aid have significantly negative effect on host country productivity, value added and export.

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Article provided by Chung-Ang Unviersity, Department of Economics in its journal Journal Of Economic Development.

Volume (Year): 29 (2004)
Issue (Month): 1 (June)
Pages: 163-187

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Handle: RePEc:jed:journl:v:29:y:2004:i:1:p:163-187
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  1. Brian Aitken & Gordon H. Hanson & Ann E. Harrison, 1994. "Spillovers, Foreign Investment, and Export Behavior," NBER Working Papers 4967, National Bureau of Economic Research, Inc.
  2. Jonathan Eaton & Akiko Tamura, 1995. "Japanese and U.S. Exports and Investment as Conduits of Growth," Boston University - Institute for Economic Development 70, Boston University, Institute for Economic Development.
  3. Peter Egger & Michael Pfaffermayr, 2001. "A note on labour productivity and foreign inward direct investment," Applied Economics Letters, Taylor & Francis Journals, vol. 8(4), pages 229-232.
  4. Manuel R. AGOSIN & Ricardo MAYER, 2000. "Foreign Investment In Developing Countries, Does It Crowd In Domestic Investment?," UNCTAD Discussion Papers 146, United Nations Conference on Trade and Development.
  5. Barros, Pedro P & Cabral, Luis, 2000. "Competing for Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 8(2), pages 360-71, May.
  6. Ann E. Harrison & Brian J. Aitken, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, vol. 89(3), pages 605-618, June.
  7. Aditya Bhattacharjea, 2001. "Foreign entry and domestic welfare: lessons for developing countries," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 11(2), pages 143-162.
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