Foreign Direct Investment as a Source of Endogenous Growth

Universidad de Cantabria, Economics Working Paper No. 5/03

20 Pages Posted: 15 Jul 2003

See all articles by Blanca Sanchez-Robles

Blanca Sanchez-Robles

UNED, Departamento de Análisis Económico

Marta Bengoa-Calvo

Colin Powell School for Civic and Global Leadership and City University of New York

Date Written: June 2003

Abstract

Recent research has stressed the role of technology as one of the crucial drive engines of growth. Not every country, however, has the same possibilities to access advanced technology. Many LDCs lack the necessary social infrastructure in order to innovate and must often recur to benefit from technology invented elsewhere. One of the channels whereby technology may diffuse from developed to developing countries is Foreign Direct Investment (FDI).

This paper designs and discusses a simple model in which FDI generate endogenous, non zero growth. In particular, FDI brings about growth because it facilitates the entry of intermediate goods of more advanced technology in the host country, thus increasing both domestic capital and output. In contrast, if the entrance of FDI is obstructed or precluded by policy measures in the host country, the growth rate of the latter will be smaller or even zero.

Keywords: foreign direct investment, endogenous growth, developing countries

JEL Classification: 040

Suggested Citation

Sanchez-Robles, Blanca and Bengoa-Calvo, Marta, Foreign Direct Investment as a Source of Endogenous Growth (June 2003). Universidad de Cantabria, Economics Working Paper No. 5/03, Available at SSRN: https://ssrn.com/abstract=410441 or http://dx.doi.org/10.2139/ssrn.410441

Blanca Sanchez-Robles (Contact Author)

UNED, Departamento de Análisis Económico ( email )

Paseo de la Senda del Rey 11
MADRID, Madrid 28040
Spain

Marta Bengoa-Calvo

Colin Powell School for Civic and Global Leadership and City University of New York ( email )

160 Convent Av
New York, NY 10031
United States

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