 Does foreign direct investment expand the capability set in the host economy? A sectoral analysisPeter Kannen The World Economy, 2020, vol. 43, issue 2, 428-457 Abstract: Most empirical studies examining the impact of foreign direct investment (FDI) on economic development use aggregate monetary‐based measures such as GDP or TFP growth as indicators for development. We deviate from this approach and use instead the recently developed economic complexity index; this measure summarises the complexity of the productive structure of an economy, and its values can be interpreted as the number of capabilities present in a country. These capabilities are units of productive knowledge necessary for the production of goods, and goods differ in the number of necessary capabilities. Furthermore, we use sectoral FDI data to take differences between sectors of an economy into account, since the number of necessary capabilities also varies between the sectors. In our empirical analysis, covering 63 developing and developed countries over the period 2005–14, we find that FDI in the tertiary sector has a statistically significant and robust positive effect on the number of capabilities, whereas FDI in the primary and secondary sectors generally does not increase the capability set of an economy. Date: 2020 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:worlde:v:43:y:2020:i:2:p:428-457 Ordering information: This journal article can be ordered from Access Statistics for this article The World Economy is currently edited by David Greenaway More articles in The World Economy from Wiley Blackwell |
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