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The Long-Run Relationship between Outward FDI and Total Factor Productivity: Evidence for Developing Countries

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  • Herzer, Dierk

Abstract

This paper examines the long-run relationship between outward foreign direct investment (FDI) and total factor productivity for a sample of 33 developing countries over the period 1980-2005. Using panel cointegration techniques, we find that: (i) outward FDI has, on average, a positive long-run effect on total factor productivity in developing countries, (ii) increased factor productivity is both consequence and a cause of increased outward FDI, and (iii) there are large differences in the long-run effects of outward FDI on total factor productivity across countries. Cross-sectional regressions indicate that these cross-country differences in the productivity effects of outward FDI are significantly negatively related to cross-country differences in labor market regulation, whereas there is no statistically significant association between the productivity effects of outward FDI and the level of human capital, the level of financial development, or the degree of trade openness in the home country.

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Paper provided by Verein für Socialpolitik, Research Committee Development Economics in its series Proceedings of the German Development Economics Conference, Berlin 2011 with number 41.

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Date of creation: 2011
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Handle: RePEc:zbw:gdec11:41
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Keywords: outward FDI; total factor productivity; developing countries; panel cointegration;

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Find related papers by JEL classification:
  • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
  • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
  • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
  • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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Cited by:

  1. Aleksandra Parteka & Joanna Wolszczak-Derlacz, 2013. "The Impact of Trade Integration with the European Union on Productivity in a Posttransition Economy: The Case of Polish Manufacturing Sectors," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 49(2), pages 84-104, March.
  2. Daniel Sakyi & Jose Villaverde & Adolfo Maza & Krishna Reddy Chittedieonardo, 2012. "Trade Openness, Growth and Development: Evidence from Heterogeneous Panel Cointegration Analysis for Middle-Income Countries," REVISTA CUADERNOS DE ECONOMÍA, UN - RCE - CID.
  3. Ayesha Ashraf & Dierk Herzer & Peter Nunnenkamp, 2014. "The Effects of Greenfield FDI and Cross-border M&As on Total Factor Productivity," Kiel Working Papers 1941, Kiel Institute for the World Economy.

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