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FDI and Growth: What Cross-Country Industry Data Say

35 Pages Posted: 10 May 2011 Last revised: 27 May 2011

Maria Cipollina

Università degli Studi del Molise

Giorgia Giovannetti

Università di Firenze

Filomena Pietrovito

Università degli Studi del Molise

Alberto F. Pozzolo

Università del Molise - Dipartimento di Economia, Società e Istituzioni

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Date Written: May 9, 2011

Abstract

The theoretical literature has discussed different channels through which foreign direct investments (FDI) promote host country’s economic growth, but empirical analyses have so far been inconclusive. In this paper we provide evidence that FDI have a positive and statistically significant growth effect in recipient countries, using a panel of 14 manufacturing sectors for (a sample of) developed and developing countries over the period 1992 -2004. Moreover, we find that this effect is stronger in capital intensive and in technologically advanced sectors, highlighting the importance of sector characteristics. We find that the growth enhancing effect comes primarily from an increase in total factor productivity (TFP) and from capital accumulation. FDI not only contribute to physical capital accumulation, but also generate positive technological spillovers. Our results are robust to the inclusion of other determinants of economic growth. We also address the issue of potential endogeneity and results are confirmed. Policy implications of our findings are important, especially for developing countries, where the growth enhancing promotion of foreign investment in capital intensive and technologically advanced sectors is at the heart of the debate.

Keywords: Foreign direct investment, Economic growth, Capital intensity, Technological progress, Patents,Total factor productivity

JEL Classification: F23, F36, F43, O16

Suggested Citation

Cipollina, Maria and Giovannetti, Giorgia and Pietrovito, Filomena and Pozzolo, Alberto F., FDI and Growth: What Cross-Country Industry Data Say (May 9, 2011). Available at SSRN: https://ssrn.com/abstract=1836243 or http://dx.doi.org/10.2139/ssrn.1836243

Maria Cipollina

Università degli Studi del Molise ( email )

Via De Sanctis
I-86100 Campobasso, Campobasso (CB) 86100
Italy

Giorgia Giovannetti

Università di Firenze ( email )

Piazza di San Marco, 4
Florence, 50121
Italy

Filomena Pietrovito (Contact Author)

Università degli Studi del Molise ( email )

Via F. de Sanctis s.n.c.
Campobasso, Campobasso (CB) 86100
Italy

Alberto F. Pozzolo

Università del Molise - Dipartimento di Economia, Società e Istituzioni ( email )

Via De Sanctis
I-86100 Campobasso
Italy
+390874404198 (Phone)
+39087498043 (Fax)

HOME PAGE: http://dipeconomia.unimol.it/

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