FDI and Growth: What Cross-country Industry Data Say

Authors


  • We would like to thank Filippo Reganati and seminar participants at the Brown Bag Lunch Meeting at the Italian Treasury, at the 11th European Trade Study Group Annual Conference, at the 25th European Economic Association Annual Meeting, and at the 51st scientific meeting of the Società Italiana degli Economisti. Cipollina, Pietrovito and Pozzolo acknowledge financial support from the ‘New Issues in Agricultural, Food and Bio-energy Trade (AGFOODTRADE)’ (Small and Medium-scale Focused Research Project, Grant Agreement no. 212036) research project funded by the European Commission. The views expressed in this article are the sole responsibility of the authors and do not necessarily reflect those of the European Commission.

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 rather inconclusive. In this paper, exploiting the information of a disaggregated data set on a panel of 14 manufacturing sectors for (a sample of) developed and developing countries over the period 1992–2004, we are able to provide robust evidence on the positive and statistically significant growth effect of FDI in recipient countries. Moreover, we find that this effect is stronger in capital-intensive and technologically advanced sectors. The growth enhancing effect comes primarily from an increase in total factor productivity (TFP) and from factors accumulation. Our results are robust to the inclusion of other determinants of economic growth and to controlling for potential endogeneity.

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