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FDI and Capital Formation in Developing Economies: New Evidence from Industry-level Data

Alessia Amighini (), Margaret McMillan () and Marco Sanfilippo ()

No 23049, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We contribute to the long debated issue of whether inward foreign direct investment (FDI) can stimulate investment in developing countries by introducing a novel measure of FDI, based on industry-level data. Our results suggest a positive impact of FDI on total investment – measured as the ratio of gross fixed capital formation to GDP – but only if multinational enterprises engage in manufacturing production; the same does not hold for other business activities. Moreover, we find evidence of a more beneficial impact of foreign investors from advanced economies compared to developing ones. Our results are robust to alternative measures of FDI, as well as to instrumental variable approaches accounting for the potential endogeneity of FDI.

JEL-codes: F21 F23 F63 (search for similar items in EconPapers)
Date: 2017-01
New Economics Papers: this item is included in nep-int
Note: ITI
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