The long-run effect of foreign direct investment on total factor productivity in developing countries: a panel cointegration analysis

Dierk Herzer and Julian Donaubauer

Empirical Economics, 2018, vol. 54, issue 2, No 1, 309-342

Abstract: Abstract This paper examines the long-run effect of the level of foreign direct investment (FDI) on the level of total factor productivity (TFP) for 49 developing countries for the period 1981–2011 using panel cointegration and causality techniques. It is found that (i) FDI has, on average, a negative long-run effect on TFP in developing countries, (ii) long-run causality runs in only one direction, from FDI to TFP, (iii) in the short run, TFP has a negative effect on FDI, and (iv) the long-run effect of FDI of TFP differs between selected groups of countries: While the estimated long-run FDI–TFP coefficients are always relatively large, negative, and significant for countries with lower levels of human capital, financial development, and trade openness, the estimated effects are relatively small, insignificant, or even significantly positive for subgroups of countries with higher levels of human capital, financial development, and trade openness.

Keywords: FDI; TFP; Developing countries; Panel cointegration (search for similar items in EconPapers)
JEL-codes: C23 F21 O47 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (12)

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Working Paper: The long-run effect of foreign direct investment on total factor productivity in developing countries: A panel cointegration analysis (2015)
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DOI: 10.1007/s00181-016-1206-1

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