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Foreign Direct Investment and Productivity Growth: Theory

In: Globalisation and Productivity Growth

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  • Ben Ferrett

Abstract

This chapter presents several theoretical perspectives on the relationship between foreign direct investment (FDI) flows and productivity growth, interpreted as growth in total factor productivity (TFP), the joint productivity of a given bundle of inputs (e.g. capital and labour). Two ways in which a firm’s TFP can increase can be distinguished.1 A firm might receive superior technical knowledge from other firms (`spillovers’), or it might develop better techniques internally, via investment in research and development (R&D). The models outlined in this chapter can be viewed as formalisations of the linkage between FDI flows and these two mechanisms.

Suggested Citation

  • Ben Ferrett, 2005. "Foreign Direct Investment and Productivity Growth: Theory," Palgrave Macmillan Books, in: Holger Görg & David Greenaway & Richard Kneller (ed.), Globalisation and Productivity Growth, chapter 4, pages 49-78, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-52322-7_4
    DOI: 10.1057/9780230523227_4
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    Cited by:

    1. María C. Latorre, 2013. "On the Differential Behaviour of National and Multinational Firms: A Within- and Across-sectors Approach," The World Economy, Wiley Blackwell, vol. 36(10), pages 1294-1317, October.
    2. Hakan Berument & N. Nergiz Dincer & Zafer Mustafaoglu, 2011. "Total factor productivity and macroeconomic instability," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 20(5), pages 605-629, September.

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