The Elusive Link Between FDI and Economic Growth

Bénétrix, Agustin, Hayley Pallan and Ugo Panizza

No 17692, CEPR Discussion Papers from Centre for Economic Policy Research

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 {\it 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: Economic; and; financial; development (search for similar items in EconPapers)
JEL-codes: C21 C26 F21 F43 (search for similar items in EconPapers)
Date: 2022-11
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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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