How Does Foreign Direct Investment Affect Economic Growth?

Borensztein, Eduardo; de Gregorio, Jose; Lee, Jong-Wha

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How Does Foreign Direct Investment Affect Economic Growth?

NBER Working Paper No. w5057

29 Pages Posted: 6 Sep 2000 Last revised: 28 Apr 2022

See all articles by Eduardo Borensztein

Jose de Gregorio

Central Bank of Chile; Universidad de Chile; National Bureau of Economic Research (NBER)

Jong-Wha Lee

Korea University

There are 2 versions of this paper

Date Written: March 1995

Abstract

We test the effect of foreign direct investment (FDI) on economic growth in a cross-country regression framework, utilizing data on FDI flows from industrial countries to 69 developing countries over the last two decades. Our results suggest that FDI is an important vehicle for the transfer of technology, contributing relatively more to growth than domestic investment. However, the higher productivity of FDI holds only when the host country has a minimum threshold stock of human capital. In addition, FDI has the effect of increasing total investment in the economy more than one for one, which suggests the predominance of complementarity effects with domestic firms.

Suggested Citation: Suggested Citation

Borensztein, Eduardo and de Gregorio, Jose and Lee, Jong-Wha, How Does Foreign Direct Investment Affect Economic Growth? (March 1995). NBER Working Paper No. w5057, Available at SSRN: https://ssrn.com/abstract=225836