Growth and the Quality of Foreign Direct Investment: Is All FDI Equal?Laura Alfaro () and Andrew Charlton CEP Discussion Papers from Centre for Economic Performance, LSE Abstract: In this paper we distinguish different "qualities" of FDI to re-examine the relationshipbetween FDI and growth. We use 'quality' to mean the effect of a unit of FDI on economicgrowth. However this is difficult to establish because it is a function of many differentcountry and project characteristics which are often hard to measure Hence, we differentiate"quality FDI" in several different ways. First, we look at the possibility that the effects of FDIdiffer by sector. Second, we differentiate FDI based on objective qualitative industrycharacteristics including the average skill intensity and reliance on external capital. Third, weuse a new dataset on industry-level targeting to analyze quality FDI based on the subjectivepreferences expressed by the receiving countries themselves. Finally, we use a two-stage leastsquares methodology to control for measurement error and endogeneity. Exploiting a newcomprehensive industry level data set of 29 countries between 1985 and 2000, we find thatthe growth effects of FDI increase when we account for the quality of FDI. Keywords: foreign direct investment; economic growth; industry data; spillovers; instrumental variables (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: http://EconPapers.repec.org/RePEc:cep:cepdps:dp0830 Access Statistics for this paper More papers in CEP Discussion Papers from Centre for Economic Performance, LSE |
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