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

39 Pages Posted: 17 Jan 2017 Last revised: 25 Jun 2022

See all articles by Alessia A. Amighini

Alessia A. Amighini

Università del Piemonte Orientale; Catholic University of the Sacred Heart of Milan

Margaret McMillan

Tufts University - Department of Economics; International Food Policy Research Institute (IFPRI); National Bureau of Economic Research (NBER)

Marco Sanfilippo

University of Antwerp - Institute of Development Policy and Management

Date Written: January 2017

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.

Suggested Citation

Amighini, Alessia A. and McMillan, Margaret and Sanfilippo, Marco, FDI and Capital Formation in Developing Economies: New Evidence from Industry-Level Data (January 2017). NBER Working Paper No. w23049, Available at SSRN: https://ssrn.com/abstract=2900054

Alessia A. Amighini (Contact Author)

Università del Piemonte Orientale ( email )

Via Perrone 18
28100 Novara
Italy

Catholic University of the Sacred Heart of Milan ( email )

Largo Gemelli, 1
Via Necchi 9
Milan, MI 20123
Italy

Margaret McMillan

Tufts University - Department of Economics ( email )

Medford, MA 02155
United States

International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Marco Sanfilippo

University of Antwerp - Institute of Development Policy and Management ( email )

City campus building S
Lange Sint Annastraat 7
Antwerp, 2000
Belgium

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