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FDI, openness and income

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  • Ting Gao

Abstract

This is an empirical study of the impact of foreign direct investment (FDI) on income. It presents cross-country evidence that inward FDI is positively correlated with income. In addition, an instrument for FDI is constructed to address the issue of endogeneity. The results show that instrumental-variables (IV) estimates of the impact of FDI on income are positive and greater than OLS estimates, similar to the findings on trade in Frankel and Romer (1999). The evidence in this paper suggests that inward FDI contributes to higher income, and favours the argument of Irwin and Tervio (2002) that trade openness is subject to measurement error - in particular, trade is an imperfect proxy for many income-enhancing interactions between countries.

Suggested Citation

  • Ting Gao, 2004. "FDI, openness and income," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 13(3), pages 305-323.
  • Handle: RePEc:taf:jitecd:v:13:y:2004:i:3:p:305-323
    DOI: 10.1080/0963819042000240048
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    References listed on IDEAS

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    1. Holger Görg & Eric Strobl & Frank Walsh, 2016. "Why Do Foreign-Owned Firms Pay More? The Role of On-the-Job Training," World Scientific Book Chapters,in: MULTINATIONAL ENTERPRISES AND HOST COUNTRY DEVELOPMENT Volume 53: World Scientific Studies in International Economics, chapter 3, pages 33-51 World Scientific Publishing Co. Pte. Ltd..
    2. Magnus Blomstrom & Robert E. Lipsey & Mario Zejan, 1992. "What Explains Developing Country Growth?," NBER Working Papers 4132, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Richard Sellner & Wolfgang Polasek, 2011. "Does Globalization affect Regional Growth? Evidence for NUTS-2 Regions in EU-27," ERSA conference papers ersa11p819, European Regional Science Association.
    2. Wolfgang Polasek & Richard Sellner, 2013. "The Does Globalization Affect Regional Growth? Evidence for NUTS-2 Regions in EU-27," DANUBE: Law and Economics Review, European Association Comenius - EACO, issue 1, pages 23-65, March.
    3. Muhammad Arshad Khan, 2007. "Foreign Direct Investment and Economic Growth: The Role of Domestic Financial Sector," PIDE-Working Papers 2007:18, Pakistan Institute of Development Economics.

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