FDI and Total Factor Productivity Growth: New Macro Evidence
No 27-13, Monash Economics Working Papers from Monash University, Department of Economics
Although the role of FDI in facilitating technology transfer is well-known in the literature, empirical evidence regarding the effect of FDI on growth is mixed. The contradictory results in the literature may be due to the failure to account for endogeneity and for the abortive capacity of the hosting countries. Using panel data for 49 countries over the period 1974-2008 and the existence of Investment Promotion Agencies in the receiving countries as an instrument, our results show that increased FDI stock leads to higher productivity growth. We also find a significant positive effect on the interaction between FDI stock and distance to the technological frontier, suggesting that the ability of technologically backward countries in absorbing technologies developed at the frontiers increases as more FDI stock is accumulated.
Keywords: FDI; TFP growth; technological transfer; technology gap; system GMM (search for similar items in EconPapers)
JEL-codes: F21 F23 O33 (search for similar items in EconPapers)
Pages: 51 pages
New Economics Papers: this item is included in nep-eff and nep-fdg
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Persistent link: https://EconPapers.repec.org/RePEc:mos:moswps:2013-27
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