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FDI and growth: A new look at a still puzzling issue

  • Dalila NICET-CHENAF (GREThA UMR CNRS 5113)
  • Eric ROUGIER (GREThA UMR CNRS 5113)

In this paper, we argue that the inadequacy of their underlying formal model can explain the failure of the existing empirical studies to exhibit a robust and convergent estimation of the effect of FDI on growth. We build a structural model of growth with endogenous attraction to FDI, and we estimate it on panel data for a sample of Middle East and North Africa countries (MENA). Direct effects of FDI on growth are not significant, and we show that FDI is not only responsive to growth, but it is also likely to promote increases of GDP through indirect channels as it spurs the formation of human capital and exports.

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Paper provided by Groupe de Recherche en Economie Théorique et Appliquée in its series Cahiers du GREThA with number 2009-13.

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Date of creation: 2009
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Handle: RePEc:grt:wpegrt:2009-13
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