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The Elusive Link Between FDI and Economic Growth

Agustín Bénétrix, Hayley Pallan and Ugo Panizza

No 26-2022, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies

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 sufficienty 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 e ect 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; Economic Growth; Human Capital; Financial Development (search for similar items in EconPapers)
JEL-codes: C21 C26 F21 F43 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2022-11-30
New Economics Papers: this item is included in nep-dev, nep-fdg, nep-ifn and nep-int
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Related works:
Working Paper: The Elusive Link Between FDI and Economic Growth (2023) Downloads
Working Paper: The Elusive Link Between FDI and Economic Growth (2022) Downloads
Working Paper: The Elusive Link Between FDI and Economic Growth (2022) Downloads
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