Foreign Direct Investment, Absorptive Capacity and Growth in the Arab World
Arab countries have been performing very poorly in attracting FDI inflows relative to other developing countries since the early 1990s. Arab countries might hence be missing out on growth and development, if FDI is associated with positive externalities. The recent empirical literature on FDI and growth shows, however, that the latter is not always the case, and that FDI is more likely to have positive externalities in countries with a certain level of absorptive capacity for FDI. This paper looks at FDI and growth through absorptive capacity in the Arab world, given the available data on four different aspects of absorptive capacity: the technology gap, the level of workforce education, financial development and institutional quality. The results turn out to be highly sensitive to the specific measure of absorptive capacity used, but one conclusion is unambiguous. It is unlikely that the average Arab country currently stands to gain from FDI. As a consequence, costly financial incentives to attract more FDI might hence be wasteful, if not welfare reducing in Arab countries.
|Date of creation:||May 2005|
|Date of revision:|
|Contact details of provider:|| Postal: P.O. Box 36, 1211 Geneva 21|
Phone: ++41 22 731 17 30
Fax: ++41 22 738 43 06
Web page: http://www.graduateinstitute.ch/economics
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Beata K. Smarzynska, 2003.
"Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers through Backward Linkages,"
William Davidson Institute Working Papers Series
548, William Davidson Institute at the University of Michigan.
- Beata Smarzynska Javorcik, 2004. "Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers Through Backward Linkages," American Economic Review, American Economic Association, vol. 94(3), pages 605-627, June.
- Smarzynska, Beata K., 2002. "Does foreign direct investment increase the productivity of domestic firms : in search of spillovers through backward linkages," Policy Research Working Paper Series 2923, The World Bank.
- Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998.
"How does foreign direct investment affect economic growth?1,"
Journal of International Economics,
Elsevier, vol. 45(1), pages 115-135, June.
- Eduardo Borensztein & Jose De Gregorio & Jong-Wha Lee, 1995. "How Does Foreign Direct Investment Affect Economic Growth?," NBER Working Papers 5057, National Bureau of Economic Research, Inc.
- Sadik, Ali T. & Bolbol, Ali A., 2003. "Arab External Investments: Relation to National Wealth, Estimation, and Consequences," World Development, Elsevier, vol. 31(11), pages 1771-1792, November.
- Robert J. Barro & Jong-Wha Lee, 2000.
"International Data on Educational Attainment: Updates and Implications,"
CID Working Papers
42, Center for International Development at Harvard University.
- Barro, Robert J & Lee, Jong-Wha, 2001. "International Data on Educational Attainment: Updates and Implications," Oxford Economic Papers, Oxford University Press, vol. 53(3), pages 541-63, July.
- Robert J. Barro & Jong-Wha Lee, 2000. "International Data on Educational Attainment Updates and Implications," NBER Working Papers 7911, National Bureau of Economic Research, Inc.
- Durham, J.B.J. Benson, 2004. "Absorptive capacity and the effects of foreign direct investment and equity foreign portfolio investment on economic growth," European Economic Review, Elsevier, vol. 48(2), pages 285-306, April.
- Bruno Van Pottelsberghe & Frank Lichtenberg, 2001.
"Does foreign direct investment transfer technology across borders?,"
ULB Institutional Repository
2013/6221, ULB -- Universite Libre de Bruxelles.
- Bruno Van Pottelsberghe De La Potterie & Frank Lichtenberg, 2001. "Does Foreign Direct Investment Transfer Technology Across Borders?," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 490-497, August.
- Xavier Sala-i-Martín & Elsa V. Artadi, 2003. "Economic growth and investment in the Arab world," Economics Working Papers 683, Department of Economics and Business, Universitat Pompeu Fabra.
- Haddad, Mona & Harrison, Ann, 1993. "Are there positive spillovers from direct foreign investment? : Evidence from panel data for Morocco," Journal of Development Economics, Elsevier, vol. 42(1), pages 51-74, October.
- Li, Xiaoying & Liu, Xiaming, 2005. "Foreign Direct Investment and Economic Growth: An Increasingly Endogenous Relationship," World Development, Elsevier, vol. 33(3), pages 393-407, March.
When requesting a correction, please mention this item's handle: RePEc:gii:giihei:heiwp02-2005. 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: (Rahul Mehrotra)
If references are entirely missing, you can add them using this form.