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Foreign Direct Investment, human capital and non-linearities in economic growth

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  • Constantina Kottaridi
  • Thanasis Stengos

Abstract

This paper makes a contribution to the existing literature on the foreign direct investment (FDI) and economic growth nexus by contrasting past empirical evidence and conventional wisdom and arriving at some interesting new results. By applying non-parametric methods, and thus taking into account nonlinear effects of initial income and human capital on economic growth, we explore the FDI effect on growth in much greater detail than previous studies. Our findings not only confirm the nonlinear effect of human capital in the presence of FDI inflows but also suggest that FDI inflows are growth enhancing in the middle-income countries while there is a ‘two-regime FDI effect for high income countries. This new finding appears to be independent of OECD country membership.

Suggested Citation

  • Constantina Kottaridi & Thanasis Stengos, 2008. "Foreign Direct Investment, human capital and non-linearities in economic growth," Working Papers 019, University of Peloponnese, Department of Economics.
    • Handle: RePEc:uop:wpaper:019
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    Keywords

    cross country growth regressions; FDI; human capital; semi-parametric model;
    All these keywords.

    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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