Financial globalization, convergence and growth: The role of foreign direct investment

Delfim Gomes Neto and Francisco Veiga

Journal of International Money and Finance, 2013, vol. 37, issue C, 161-186

Abstract: Using a panel dataset covering 139 countries over the 1970–2009 period, we empirically investigate the role of foreign direct investment on growth through diffusion of technology and innovation. Using an otherwise standard growth regression and regressions on productivity growth, we introduce a direct effect of foreign direct investment, which may be proxying for innovation, and an indirect effect, to capture the role of technological catch-up. We find that these two mechanisms have a positive effect on productivity growth and on GDP growth. These results are consistent with an open economy model, in which foreign direct investment affects growth through diffusion of technology and innovation.

Keywords: Foreign direct investment; Composition of foreign capital; Diffusion of technology; Catch-up; Convergence; Growth (search for similar items in EconPapers)
JEL-codes: F21 F36 F43 O47 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:37:y:2013:i:c:p:161-186

DOI: 10.1016/j.jimonfin.2013.04.005

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