IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Transition to FDI Openness: Reconciling Theory and Evidence

  • Ellen R. McGrattan

Empirical studies quantifying the economic effects of increased foreign direct investment (FDI) have not provided conclusive evidence that they are positive, as theory predicts. This paper shows that the lack of empirical evidence is consistent with theory if countries are in transition to FDI openness. Anticipated welfare gains lead to temporary declines in domestic investment and employment. Also, growth measures miss some intangible FDI, which is expensed from company profits. The reconciliation of theory and evidence is accomplished with a multicountry dynamic general equilibrium model parameterized with data from a sample of 104 countries during 1980-2005. Although no systematic benefits of FDI openness are found, the model demonstrates that the eventual gains in growth and welfare can be huge, especially for small countries.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.nber.org/papers/w16774.pdf
Download Restriction: no

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16774.

as
in new window

Length:
Date of creation: Feb 2011
Date of revision:
Publication status: published as Ellen McGrattan, 2012. "Transition to FDI Openness: Reconciling Theory and Evidence," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(4), pages 437-458, October.
Handle: RePEc:nbr:nberwo:16774
Note: AP EFG
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Web page: http://www.nber.org
Email:


More information through EDIRC

References listed on IDEAS
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.:

as in new window
  1. M. Ayhan Kose & Eswar Prasad & Kenneth Rogoff & Shang-Jin Wei, 2009. "Financial Globalization: A Reappraisal," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(2), pages 143-197, June.
  2. Natalia Ramondo & Andr�s Rodr�guez-Clare, 2013. "Trade, Multinational Production, and the Gains from Openness," Journal of Political Economy, University of Chicago Press, vol. 121(2), pages 273 - 322.
  3. Olivier Jeanne & Pierre-Olivier Gourinchas, 2005. "Capital Flows to Developing Countries: the Allocation Puzzle," 2005 Meeting Papers 240, Society for Economic Dynamics.
  4. Carol Corrado & Charles Hulten & Daniel Sichel, 2004. "Measuring capital and technology: an expanded framework," Finance and Economics Discussion Series 2004-65, Board of Governors of the Federal Reserve System (U.S.).
  5. Enrique G. Mendoza & Vincenzo Quadrini & José-Víctor Ríos-Rull, 2009. "Financial Integration, Financial Development, and Global Imbalances," Journal of Political Economy, University of Chicago Press, vol. 117(3), pages 371-416, 06.
  6. Ellen R. McGrattan & Edward C. Prescott, 2008. "Technology Capital and the U.S. Current Account," NBER Working Papers 13983, National Bureau of Economic Research, Inc.
  7. Caballero, Ricardo J & Farhi, Emmanuel & Gourinchas, Pierre-Olivier, 2006. "An Equilibrium Model of "Global Imbalances" and Low Interest Rates," Center for International and Development Economics Research, Working Paper Series qt7xc0g8mm, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  8. Ellen R. McGrattan & Edward C. Prescott, 2005. "Taxes, regulations, and the value of U.S. and U.K. corporations," Staff Report 309, Federal Reserve Bank of Minneapolis.
  9. Görg, Holger & Greenaway, David, 2003. "Much Ado About Nothing? Do Domestic Firms Really Benefit from Foreign Direct Investment?," IZA Discussion Papers 944, Institute for the Study of Labor (IZA).
  10. Robert E. Lucas, Jr., 2007. "Trade and the Diffusion of the Industrial Revolution," NBER Working Papers 13286, National Bureau of Economic Research, Inc.
  11. McGrattan, Ellen R. & Prescott, Edward C., 2009. "Openness, technology capital, and development," Journal of Economic Theory, Elsevier, vol. 144(6), pages 2454-2476, November.
  12. Pierre-Olivier Gourinchas & Olivier Jeanne, 2006. "The Elusive Gains from International Financial Integration," Review of Economic Studies, Oxford University Press, vol. 73(3), pages 715-741.
  13. 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.
  14. M. Ayhan Kose & Eswar S. Prasad & Ashley D. Taylor, 2009. "Thresholds in the Process of International Financial Integration," NBER Working Papers 14916, National Bureau of Economic Research, Inc.
  15. Natalia Ramondo & Andrés Rodríguez-Clare, 2010. "Growth, Size, and Openness: A Quantitative Approach," American Economic Review, American Economic Association, vol. 100(2), pages 62-67, May.
  16. Robert E. Hall, 2000. "E-Capital: The Link between the Stock Market and the Labor Market in the 1990s," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 31(2), pages 73-118.
  17. repec:bla:restud:v:73:y:2006:i:3:p:715-741 is not listed on IDEAS
  18. Ariel T. Burstein & Alexander Monge-Naranjo, 2009. "Foreign Know-How, Firm Control, and the Income of Developing Countries-super-," The Quarterly Journal of Economics, MIT Press, vol. 124(1), pages 149-195, February.
  19. Baruch Lev & Suresh Radhakrishnan, 2005. "The Valuation of Organization Capital," NBER Chapters, in: Measuring Capital in the New Economy, pages 73-110 National Bureau of Economic Research, Inc.
  20. Kosuke Aoki & Gianluca Benigno & Nobuhiro Kiyotaki, 2010. "Adjusting to Capital Account Liberalization," CEP Discussion Papers dp1014, Centre for Economic Performance, LSE.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:16774. 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: ()

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.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.