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FDI and Growth: What Cross-Country Industry Data Say

Author

Listed:
  • Maria Cipollina

    (University of Molise)

  • Giorgia Giovannetti

    (University of Florence and European University Institute)

  • Filomena Pietrovito

    (University of Molise)

  • Alberto Franco Pozzolo

    (University of Molise, Centro Studi Luca d’Agliano and MoFiR)

Abstract

The theoretical literature has discussed different channels through which foreign direct investments (FDI) promote host country’s economic growth, but empirical analyses have so far been inconclusive. In this paper we provide evidence that FDI have a positive and statistically significant growth effect in recipient countries, using a panel of 14 manufacturing sectors for (a sample of) developed and developing countries over the period 1992 - 2004. Moreover, we find that this effect is stronger in capital intensive and in technologically advanced sectors, highlighting the importance of sector characteristics. We find that the growth enhancing effect comes primarily from an increase in total factor productivity (TFP) and from capital accumulation. FDI not only contribute to physical capital accumulation, but also generate positive technological spillovers. Our results are robust to the inclusion of other determinants of economic growth. We also address the issue of potential endogeneity and results are confirmed. Policy implications of our findings are important, especially for developing countries, where the growth enhancing promotion of foreign investment in capital intensive and technologically advanced sectors is at the heart of the debate.

Suggested Citation

  • Maria Cipollina & Giorgia Giovannetti & Filomena Pietrovito & Alberto Franco Pozzolo, 2011. "FDI and Growth: What Cross-Country Industry Data Say," Development Working Papers 313, Centro Studi Luca d'Agliano, University of Milano.
  • Handle: RePEc:csl:devewp:313
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    14. Filomena Pietrovito, 2014. "Does financial development help to align growth opportunities with growth? Evidence from industry-level data," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 150(2), pages 421-442, May.
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    More about this item

    Keywords

    Foreign direct investment; Economic growth; Capital intensity; Technological progress; Patents; Total factor productivity;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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