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FDI and Economic Growth: The Role of Local Financial Markets

  • Sebnem Kalemli-Ozcan

    (The University of Houston)

  • Laura Alfaro

    (HBS)

  • Selin Sayek

    (IMF)

  • Areendam Chanda

    (NC State)

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.

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Paper provided by EconWPA in its series Macroeconomics with number 0212007.

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Length: 36 pages
Date of creation: 17 Dec 2002
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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