IDEAS home Printed from
   My bibliography  Save this paper

Can FDI Be Bad for Growth?


  • Quan Minh Quoc Binh

    (Vietnam Netherlands Programme)

  • Nguyen Trong Hoai

    (University of Economics, Ho Chi Minh City)

  • Pham Hoang Van

    (Baylor University)


We ?nd a curious negative casual relationship between foreign direct investment (FDI) and total factor productivity growth (TFPG) across the world for the period 1996-2009. The relationship is robust to speci?cations in which we instrument for FDI using lagged values and geography variables as well as when we control for country and year ?xed e?ects, human capital, the size of government, and other country di?erences. We hypothesize that not all FDI are the same as channels for technology transfer. We ?nd that higher natural resource extraction accounts for the negative relationship between FDI and TFPG. For countries with no natural resource exports, 10% higher FDI causes 0.7-1.9% faster TFPG. The same 10% higher FDI, however, in countries with 6% higher natural resource exports reduces TFPG by the same amount. These ?ndings have important implications for the middle-income trap and the rise in FDI for natural resource extraction. As an illustrative example, in Vietnam from 2003-2009, FDI in mining and quarrying grew at 135% per year while TFPG in that sector averaged -3%. In manufacturing, FDI grew at only 26% per year while TFPG averaged 24%.

Suggested Citation

  • Quan Minh Quoc Binh & Nguyen Trong Hoai & Pham Hoang Van, 2013. "Can FDI Be Bad for Growth?," Working Papers 10, Development and Policies Research Center (DEPOCEN), Vietnam.
  • Handle: RePEc:dpc:wpaper:1013

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory of Fairness, Competition, and Cooperation," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 817-868.
    2. Brennan, Geoffrey & González, Luis G. & Güth, Werner & Levati, M. Vittoria, 2008. "Attitudes toward private and collective risk in individual and strategic choice situations," Journal of Economic Behavior & Organization, Elsevier, vol. 67(1), pages 253-262, July.
    3. Werner Güth & M. Vittoria Levati & Matteo Ploner, 2008. "On The Social Dimension Of Time And Risk Preferences: An Experimental Study," Economic Inquiry, Western Economic Association International, vol. 46(2), pages 261-272, April.
    4. Ravallion, Martin & Lokshin, Michael, 2000. "Who wants to redistribute?: The tunnel effect in 1990s Russia," Journal of Public Economics, Elsevier, vol. 76(1), pages 87-104, April.
    5. Rothschild, Michael & Stiglitz, Joseph E., 1973. "Some further results on the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 6(2), pages 188-204, April.
    6. Shogren, Jason F., 1987. "Negative conjectures and increased public good provision," Economics Letters, Elsevier, vol. 23(2), pages 181-184.
    7. Fredrik Carlsson & Dinky Daruvala & Olof Johansson-Stenman, 2005. "Are People Inequality-Averse, or Just Risk-Averse?," Economica, London School of Economics and Political Science, vol. 72(3), pages 375-396, August.
    8. Simon Gächter & Christian Thöni, 2005. "Social Learning and Voluntary Cooperation Among Like-Minded People," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 303-314, 04/05.
    9. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
    10. Thibault Gajdos, 2001. "Les fondements axiomatiques de la mesure normative des inégalités," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00086039, HAL.
    11. Kodde, David A & Palm, Franz C, 1986. "Wald Criteria for Jointly Testing Equality and Inequality Restriction s," Econometrica, Econometric Society, vol. 54(5), pages 1243-1248, September.
    12. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
    13. Yoram Kroll & Liema Davidovitz, 2003. "Inequality Aversion versus Risk Aversion," Economica, London School of Economics and Political Science, vol. 70(277), pages 19-29, February.
    14. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
    15. Rabin, Matthew, 1993. "Incorporating Fairness into Game Theory and Economics," American Economic Review, American Economic Association, vol. 83(5), pages 1281-1302, December.
    16. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
    17. Amiel, Yoram & Creedy, John & Hurn, Stan, 1999. " Measuring Attitudes towards Inequality," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(1), pages 83-96, March.
    18. Roberto Burlando & Francesco Guala, 2005. "Heterogeneous Agents in Public Goods Experiments," Experimental Economics, Springer;Economic Science Association, vol. 8(1), pages 35-54, April.
    19. Amiel, Yoram & Cowell, F. A. & Polovin, Avraham, 2001. "Risk perceptions, income transformations and inequality," European Economic Review, Elsevier, vol. 45(4-6), pages 964-976, May.
    20. Cowell, Frank A. & Schokkaert, Erik, 2001. "Risk perceptions and distributional judgments," European Economic Review, Elsevier, vol. 45(4-6), pages 941-952, May.
    Full references (including those not matched with items on IDEAS)

    More about this item


    TFP growth; export; FDI; middle-income trap;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • Q37 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Issues in International Trade

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:dpc:wpaper:1013. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Doan Quang Hung). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.