Do Multinational Enterprises Contribute to Convergence or Divergence? A Disaggregated Analysis of US FDI

15 Pages Posted: 27 Apr 2009

See all articles by David Mayer-Foulkes

David Mayer-Foulkes

Centro de Investigación y Docencia Económicas (CIDE) - Division of Economics

Peter Nunnenkamp

University of Kiel

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Abstract

It is widely held that foreign direct investment (FDI) has a positive effect on economic growth. To test this hypothesis, we perform convergence regressions derived from a theoretical model on the impact of FDI on endogenous technological change in small economies. The model includes FDI externalities that enhance growth, but also shows that FDI can crowd out host country income and reduce local innovation. The empirical analysis employs disaggregated US data for various FDI-related activities - in addition to the conventionally used aggregate FDI stocks and flows. We estimate the net FDI impact on the convergence rate of per-capita income to US levels, controlling for human development, financial development, and trade. We find that FDI accelerates convergence for high-income countries only, otherwise slowing it down.

Suggested Citation

Mayer-Foulkes, David and Nunnenkamp, Peter, Do Multinational Enterprises Contribute to Convergence or Divergence? A Disaggregated Analysis of US FDI. Review of Development Economics, Vol. 13, No. 2, pp. 304-318, May 2009. Available at SSRN: https://ssrn.com/abstract=1395433 or http://dx.doi.org/10.1111/j.1467-9361.2009.00510.x

David Mayer-Foulkes (Contact Author)

Centro de Investigación y Docencia Económicas (CIDE) - Division of Economics ( email )

Carretera Mexico Toluca 3655
01210 Mexico, D.F.
Mexico
+52 55 5727 9839 (Phone)
+52 55 5727 9878 (Fax)

HOME PAGE: http://www.cide.edu/investigador/profile.php?IdInvestigador=25

Peter Nunnenkamp

University of Kiel ( email )

D-24100 Kiel
Germany

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