The Elusive Link Between FDI and Economic Growth

Agust n S. B n trix (), Hayley Pallan and Ugo Panizza
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Agust n S. B n trix: Department of Economics, Trinity College Dublin
Authors registered in the RePEc Author Service: Agustín S. Bénétrix

Economic Papers from Trinity College Dublin, Economics Department

Abstract: This paper revisits the link between FDI and economic growth in emerging and developing economies. When we study the early decades of our sample, we find that there is no statistically significant correlation between FDI and growth for countries with average levels of education or financial depth. In line with previous contributions, we find that this correlation is positive and statistically significant for countries with sufficiently well-developed financial sectors or high levels of human capital. However, we also find that the link between FDI and growth varies over time. For more recent periods, we find a positive and statistically significant relationship between FDI and growth for the average country, with local conditions having a negative effect on this link. We also develop a novel instrument aimed at addressing the endogeneity of FDI inflows. Instrumental variable estimates suggest that our results are unlikely to be driven by endogeneity.

Keywords: FDI; EconomicGrowth; HumanCapital; FinancialDevelopment (search for similar items in EconPapers)
JEL-codes: C21 C26 F21 F43 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2022
New Economics Papers: this item is included in nep-gro and nep-int
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https://www.tcd.ie/Economics/TEP/2022/TEP0722.pdf

Related works:
Working Paper: The Elusive Link Between FDI and Economic Growth (2023)
Working Paper: The Elusive Link Between FDI and Economic Growth (2022)
Working Paper: The Elusive Link Between FDI and Economic Growth (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:tcd:tcduee:tep0722

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