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FDI and Economic Growth: The Role of Local Financial Markets

Author

Listed:
  • Sebnem Kalemli-Ozcan

    (The University of Houston)

  • Laura Alfaro

    (HBS)

  • Selin Sayek

    (IMF)

  • Areendam Chanda

    (NC State)

Abstract

In this paper, we examine the various links among foreign direct investment (FDI), financial markets, and economic growth. We explore whether countries with better financial systems can exploit FDI more efficiently. Empirical analysis, using crosscountry data between 1975- 1995, shows that FDI alone plays an ambiguous role in contributing to economic growth. However, countries with well-developed financial markets gain significantly from FDI. The results are robust to different measures of financial market development, the inclusion of other determinants of economic growth, and consideration of endogeneity.

Suggested Citation

  • Sebnem Kalemli-Ozcan & Laura Alfaro & Selin Sayek & Areendam Chanda, 2002. "FDI and Economic Growth: The Role of Local Financial Markets," Macroeconomics 0212007, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpma:0212007
    Note: Type of Document - Tex; prepared on PC; to print on HP; pages: 36 ; figures: included. working paper (revise and resubmit)
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    References listed on IDEAS

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    More about this item

    Keywords

    Foreign direct investment; financial markets; economic growth.;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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