I thank Dr. James B. Ang and Dr. Christis Tombazos for their guidance. I also thank Maurice Bun, Rabiul Islam, the session participants of the North American Productivity Workshop 2012 and Econometric Society Australasian Meeting 2012 for helpful suggestions and comments.
Article first published online: 3 DEC 2013
© 2013 John Wiley & Sons Ltd
The World Economy
Volume 37, Issue 2, pages 311–334, February 2014
How to Cite
Baltabaev, B. (2014), Foreign Direct Investment and Total Factor Productivity Growth: New Macro-Evidence. World Economy, 37: 311–334. doi: 10.1111/twec.12115
- Issue published online: 10 FEB 2014
- Article first published online: 3 DEC 2013
Although the role of foreign direct investment (FDI) in facilitating technology transfer is well known in the literature, empirical evidence regarding the effect of FDI on growth is mixed. The contradictory results in the literature may be due to the failure to account for endogeneity and for the abortive capacity of the hosting countries. Using panel data for 49 countries over the period 1974–2008 and the existence of Investment Promotion Agencies in the receiving countries as an instrument, our results show that increased FDI stock leads to higher productivity growth. We also find a significant positive effect on the interaction between FDI stock and distance to the technological frontier, suggesting that the ability of technologically backward countries in absorbing technologies developed at the frontiers increases as more FDI stock is accumulated.