Transition to FDI Openness

FRB of Minneapolis Working Paper No. 671

Posted: 24 Jun 2009

See all articles by Ellen R. McGrattan

Ellen R. McGrattan

Federal Reserve Bank of Minneapolis - Research Department; University of Minnesota - Twin Cities; National Bureau of Economic Research (NBER)

Date Written: April 1, 2009


Empirical studies quantifying the benefits of increased foreign direct investment (FDI) have been unable to provide conclusive evidence of a positive impact on host country’s economic performance. I show that the lack of robust evidence is not inconsistent with theory, even if the eventual gains to FDI are large, if restrictions on FDI are lifted only gradually and part of FDI is intangible investment. Anticipation of future increases in FDI can result in large shifts in patterns of domestic investment and employment. Furthermore, since intangible investments are expensed, both gross domestic product (GDP) and gross national product (GNP) are low during periods of abnormally high FDI investment.

Keywords: Foreign Direct Investment, Multinationals, Capital Flows, Intangible Capital

JEL Classification: F21, F23, F41

Suggested Citation

McGrattan, Ellen R., Transition to FDI Openness (April 1, 2009). FRB of Minneapolis Working Paper No. 671, Available at SSRN:

Ellen R. McGrattan (Contact Author)

Federal Reserve Bank of Minneapolis - Research Department ( email )

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University of Minnesota - Twin Cities

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National Bureau of Economic Research (NBER)

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