Do Multinational Enterprises Contribute to Convergence or Divergence? A Disaggregated Analysis of US FDI*

David Mayer‐Foulkes and Peter Nunnenkamp
Authors registered in the RePEc Author Service: David Mayer-Foulkes

Review of Development Economics, 2009, vol. 13, issue 2, 304-318

Abstract: It is widely held that foreign direct investment (FDI) has a positive effect on economic growth. To test this hypothesis, we perform convergence regressions derived from a theoretical model on the impact of FDI on endogenous technological change in small economies. The model includes FDI externalities that enhance growth, but also shows that FDI can crowd out host country income and reduce local innovation. The empirical analysis employs disaggregated US data for various FDI‐related activities—in addition to the conventionally used aggregate FDI stocks and flows. We estimate the net FDI impact on the convergence rate of per‐capita income to US levels, controlling for human development, financial development, and trade. We find that FDI accelerates convergence for high‐income countries only, otherwise slowing it down.

Date: 2009
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Citations: View citations in EconPapers (25)

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https://doi.org/10.1111/j.1467-9361.2009.00510.x

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Working Paper: Do Multinational Enterprises Contribute to Convergence or Divergence? A Disaggregated Analysis of US FDI (2005)
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