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Is Foreign Direct Investment Good for Growth? Evidence from Sectoral Analysis of China and Vietnam

  • Tam B. Vu

    ()

    (College of Business and Economics, University of Hawaii at Hilo)

  • Byron Gangnes

    ()

    (Department of Economics, University of Hawaii at Manoa)

  • Ilan Noy

    ()

    (Department of Economics, University of Hawaii at Manoa)

We estimate the impact of FDI on growth using sectoral data for FDI inflows to China and Vietnam. Previous empirical studies, using either cross-country growth regressions or firm-level micro-econometric analysis, fail to reach a consensus. Our paper is the first to use sectoral FDI inflow data to evaluate the sector-specific impact of FDI on growth. Our results show that, for the two developing-transition economies we examine, FDI has a statistically-significant positive effect on economic growth operating directly and through its interaction with labor. Intriguingly, we find the effects seem to be very different across economic sectors, with almost all the beneficial impact limited to industrial sector. Other sectors appear to gain very little growth benefit from sector-specific FDI.

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File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_08-1.pdf
File Function: First version, 2008
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Paper provided by University of Hawaii at Manoa, Department of Economics in its series Working Papers with number 200801.

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Length: 37 pages
Date of creation: 01 Jan 2008
Date of revision:
Handle: RePEc:hai:wpaper:200801
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