FDI Spillovers, Financial Markets, and Economic Development

Selin Sayek, Laura Alfaro, Areendam Chanda and Sebnem Kalemli-Ozcan

No 2003/186, IMF Working Papers from International Monetary Fund

Abstract: This paper examines the role financial markets play in the relationship between foreign direct investment (FDI) and economic development. We model an economy with a continuum of agents indexed by their level of ability. Agents can either work for the foreign company or undertake entrepreneurial activities, which are subject to a fixed cost. Better financial markets allow agents to take advantage of knowledge spillovers from FDI, magnifying the output effects of FDI. Empirically, we show that well-developed financial markets allow significant gains from FDI, while FDI alone plays an ambiguous role in contributing to development.

Keywords: WP; central bank; economic growth; entrepreneurial activity; financial markets; foreign direct investment; net FDI inflow; FDI enterprise; FDI share; FDI flow; FDI sector; Financial sector; Financial sector development; Stock markets; Foreign corporations; Sub-Saharan Africa; Africa (search for similar items in EconPapers)
Pages: 32
Date: 2003-09-01
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Citations: View citations in EconPapers (29)

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