Absorptive Capacity and the Effects of Foreign Direct Investment and Equity Foreign Portfolio Investment on Economic Growth
Posted: 19 Jun 2019
Date Written: 2004
This study examines the effects of foreign direct investment (FDI) and equity foreign portfolio investment (EFPI) on economic growth using data on 80 countries from 1979 through 1998. The results largely suggest that lagged FDI and EFPI do not have direct, unmitigated positive effects on growth, but some data are consistent with the view that the effects of FDI and EFPI are contingent on the ‘absorptive capacity’ of host countries, with particular respect to financial or institutional development. Moreover, extreme bound analysis (EBA) of significant results indicates that the estimates are robust compared to other empirical studies on growth.
Keywords: foreign direct investment, equity foreign portfolio, investment, economic growth, financial development
JEL Classification: F3, F4, O1
Suggested Citation: Suggested Citation