Foreign Direct Investment and Economic Growth: Exploring the Transmission Channels

Kamil Makiela; B Ouattara

doi:10.1016/j.econmod.2018.02.007

Foreign Direct Investment and Economic Growth: Exploring the Transmission Channels

Kamil Makiela, B Ouattara

Global Development Institute

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Abstract

The impact of foreign direct investment (FDI) on growth remains a thorny question for researchers and policy makers. At the theoretical level it has been argued that FDI is growth enhancing. However, existing empirical studies have left researchers and policy makers perplexed as these studies do not appear to find a strong relationship between the two variables. This paper departs from the existing literature by exploring the transmission channels from FDI to growth. The results, based on a sample of developed and developing countries over the period 1970-2007, conclusively reveal that FDI affects growth via inputs accumulation but not the total factor productivity growth channel. In other words, our results suggest that factors other than FDI may have contributed to the increase in productivity witnessed in developing countries in recent decades.

Original language	English
Pages (from-to)	296-305
Number of pages	10
Journal	Economic Modelling
Volume	72
Early online date	20 Feb 2018
DOIs	https://doi.org/10.1016/j.econmod.2018.02.007
Publication status	Published - 20 Feb 2018

Keywords

Bayesian inference
Dynamic panel data
Economic growth
Foreign direct investment
Total factor productivity

Research Beacons, Institutes and Platforms

Global Development Institute

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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10.1016/j.econmod.2018.02.007

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abstract = "The impact of foreign direct investment (FDI) on growth remains a thorny question for researchers and policy makers. At the theoretical level it has been argued that FDI is growth enhancing. However, existing empirical studies have left researchers and policy makers perplexed as these studies do not appear to find a strong relationship between the two variables. This paper departs from the existing literature by exploring the transmission channels from FDI to growth. The results, based on a sample of developed and developing countries over the period 1970-2007, conclusively reveal that FDI affects growth via inputs accumulation but not the total factor productivity growth channel. In other words, our results suggest that factors other than FDI may have contributed to the increase in productivity witnessed in developing countries in recent decades.",

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AU - Ouattara, B

PY - 2018/2/20

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N2 - The impact of foreign direct investment (FDI) on growth remains a thorny question for researchers and policy makers. At the theoretical level it has been argued that FDI is growth enhancing. However, existing empirical studies have left researchers and policy makers perplexed as these studies do not appear to find a strong relationship between the two variables. This paper departs from the existing literature by exploring the transmission channels from FDI to growth. The results, based on a sample of developed and developing countries over the period 1970-2007, conclusively reveal that FDI affects growth via inputs accumulation but not the total factor productivity growth channel. In other words, our results suggest that factors other than FDI may have contributed to the increase in productivity witnessed in developing countries in recent decades.

AB - The impact of foreign direct investment (FDI) on growth remains a thorny question for researchers and policy makers. At the theoretical level it has been argued that FDI is growth enhancing. However, existing empirical studies have left researchers and policy makers perplexed as these studies do not appear to find a strong relationship between the two variables. This paper departs from the existing literature by exploring the transmission channels from FDI to growth. The results, based on a sample of developed and developing countries over the period 1970-2007, conclusively reveal that FDI affects growth via inputs accumulation but not the total factor productivity growth channel. In other words, our results suggest that factors other than FDI may have contributed to the increase in productivity witnessed in developing countries in recent decades.

KW - Bayesian inference

KW - Dynamic panel data

KW - Economic growth

KW - Foreign direct investment

KW - Total factor productivity

U2 - 10.1016/j.econmod.2018.02.007

DO - 10.1016/j.econmod.2018.02.007

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SN - 0264-9993

VL - 72

SP - 296

EP - 305

JO - Economic Modelling

JF - Economic Modelling

ER -

Foreign Direct Investment and Economic Growth: Exploring the Transmission Channels

Abstract

Keywords

Research Beacons, Institutes and Platforms

UN SDGs

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