Vadlamannati, Krishna Chaitanya (2009): Growth effects of U.S. FDI in 64 developing economies, 1980 – 2007: The role of absoptive capabilities.
Download (288kB) | Preview
Both theoretical and empirical literatures have identified several channels through which FDI influence economic growth in developing countries. This study however examines the growth effects of U.S. FDI in 64 developing countries over the period 1980-2006. We also measure the strength of host countries “absorptive capabilities” to adopt and adapt the foreign technology from an advanced country like U.S. The relative differences in factor endowments between the U.S. and individual host countries along with economic and institutional policy reforms are used as absorptive capabilities in this study. Using aggregate production function augmented with U.S. FDI inflows, policy reforms, factor endowment differences and their interactions with U.S. FDI demonstrate that: (a) irrespective of capability level, an increase in the stock of U.S. FDI effects output growth positively. (b) After controlling for omitted variable and endogenity bias using IV method, the upward bias of growth effects of U.S. FDI came down from an excess of 7% to 4%. (c) The results with respect to absorptive capabilities are mixed. While the beneficiary effects of U.S. FDI are stronger in countries reforming economy and institutions, we could not find significant results for dissimilarity in endowments leading to costlier technology transfers from U.S. (d) Furthermore, the growth effects of U.S. FDI are positively significant in post cold war period to pre-cold war era. Similarly, in post cold war period, the growth effects of U.S. FDI are strongly positive and significant in Asia and Latin countries, while the same couldn’t be found for Africa neither in 1980s nor in 1990s.
|Item Type:||MPRA Paper|
|Original Title:||Growth effects of U.S. FDI in 64 developing economies, 1980 – 2007: The role of absoptive capabilities|
|Keywords:||FDI; economic growth; policy reforms; factor endowments|
|Subjects:||O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O10 - General
F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms ; International Business
|Depositing User:||Krishna Chaitanya Vadlamannati|
|Date Deposited:||19. Apr 2009 04:37|
|Last Modified:||14. Feb 2013 01:18|
Aghion P & Howitt P (1992): A Model of Growth through Creative Destruction, Econometrica, 60, pp. 323-351.
Baltagi, Badi H (2005): Econometric Analysis of Panel Data (3rd edition), Chichester, UK: John Wiley & Sons.
Barro, Robert J. & Lee J. W (1994): Sources of Economic growth, Carnegie-Rochester Conference Series on Public Policy, 40.
Barro, Robert J. (1991): Economic growth in Cross Section of Countries, Quarterly Journal of Economics, 106(2), pp. 407-443.
Barro, Robert J. & Sala-i-Martin (2004): Economic Growth, 2nd edition, The MIT press, Cambridge.
Bassanini A, Scarpetta S, Hemmings P (2001): Economic Growth: The Role of Policies & Institutions – Panel data evidence from OECD countries, OECD Working paper 283.
Beck, N. (2001): Time-series cross-section data: What have we learned in the past few years?, Annual Review of Political Science, 4, pp. 271-293.
Blomstrom, M., (1986): Foreign Investment and Productive Efficiency: The Case of Mexico, Journal of Industrial Economics, 15, 97-110.
Borensztein, E.; Gregorio, J-De & Lee, J.W. (1998): How does Foreign Direct Investment Affect Economic Growth?, Journal of International Economics, 45, pp: 115 – 135.
Bruno M., & Easterly, W (1998): Inflation Crisis & Long-run growth, Journal of Monetary Economics, 41(1), pp.
Bosworth, Barry, and Susan M. Collins (2003): The Empirics of Growth: An Update, Brookings Papers on Economic Activity 2003, no. 2: 113-206.
Busse, Matthias & Hefeker, Carsten (2007): Political risk, institutions & FDI, European Journal of Political Economy, 23(2), pp. 397-415.
Chousa J. Pinerio, Khan, Haider A., Melikyan, Davit & Tamazian, Artur (2005): Assessing Institutional Efiiciency, Growth & Integration, Emerging Markets Review, 6, pp. 69-84
Caves, R. (1996): Multinational Enterprises and Economic Analysis, 2nd edition (Cambridge: Cambridge University Press).
Collier, P., Hoeffler, A., Testing the neocon agenda: Democracy in resource-rich societies. European Economic Review (2008), doi:10.1016/j.euroecorev.2008.05.006
De Mello, L. R. (1997): FDI in Developing Countries and Growth: A Selective Survey, Journal of Development Studies, 34(1), pp. 1–34.
Dixon, William J. & Terry Boswell (1996): Dependency, Disarticulation, & Denominator Effects: Another Look at Foreign Capital Penetration, American Journal of Sociology 102, pp. 543-62.
Dollar, D. (1992): Outward-oriented developing economies really do grow more rapidly: Evidence from 95 LDCs, 1976-1985, Economic Development & Cultural Change, 40(3), pp. 523-544.
Egger, P. (2003): Does Contract Risk Impede Foreign Direct Investment? Schweizerische Zeitschrift für Volkswirtschaft und Statistik, 139(2), pp. 155–72.
Findlay, R. (1978): Relative Backwardness, FDI & Transfer of Technology: A Simple Dynamic Model, Quarterly Journal of Economics, 62(1), pp. 1–16.
Fosfuri, A.; Motta, M, Rønde, T. (2001): Foreign Direct Investment and Spillovers through Workers Mobility, Journal of International Economics, 53, 205-222.
Gaibulloev, Khusrav & Todd Sandler (2008): The Impact of Terrorism and Conflicts on Growth in Asia, 1970–2004, ADBI Discussion Paper 113, Tokyo: Asian Development Bank Institute.
Glass, A. J. Saggi, K. (2002): Multinational Firms and Technology Transfer, Scandinavian Journal of Economics, 104 (4), 495-513.
Gwartney, James D., Lawson, Robert, & Easterly, William (2006): Economic Freedom of the World: 2006 Annual Report, Vancouver.
Khan, Haider A. (2005): Governance, African Debt, and Sustainable Development: Policies for Partnership with Africa, CIRJE F-Series CIRJE-F-334, CIRJE, Faculty of Economics, University of Tokyo
Katz Arnold J & Herman S. W (1997): Improved Estimates of Fixed Reproducible Tangible Wealth 1929-95, Survey of Currency Business, May, 69-75.
Mankiw, N. G., D. Romer, and D. N. Weil (1992): A Contribution to the Empirics of Economic Growth, Quarterly Journal of Economics, 107 (2), pp. 407-437.
Mauro, P. (1995): Corruption and Growth, Quarterly Journal of Economics, 110 (3), pp. 681-712.
Maddison, Angus (2001): The World Economy: A Millennial Perspective, OECD Development Centre, Paris.
Mansfield, E., and A. Romeo (1980): Technology Transfer to Overseas Subsidiaries by US-based Firms, Quarterly Journal of Economics, 95(4):737-50.
Markusen, J. & Venables V. (1999): Foreign Direct Investment as a Catalyst for Industrial Development, European Economic Review, 43(2), pp. 335–56.
Olofsdotter Karin (1998): FDI, Country Capabilities & Economic Growth, Welwirtschaftliches Archiv, 134(3), pp. 533-545.
Peri G. & Urban D. (2006): Catching up to foreign technology? Evidence on ‘Veblen- Gerschenkron’ effect of FDI, Regional Science & Urban Economics, 36, pp. 72-98.
Ram, Rati, & K.H. Zhang (2002): FDI and Economic Growth: Evidence from Cross-Country Data for the 1990s, Economic Development & Cultural Change, 51, pp.205-215.
Rodríguez, F. & Rodrik, D. (2000): Trade policy & economic growth: a skeptic´s guide to the cross-national evidence, in Ben Bernanke & Kenneth Rogoff (eds.) NBER Macroeconomics Annual 2000, pp. 261– 324. Cambridge, Mass.: MIT Press. Rogers, William H, (1993): Regression Standard Errors in Clustered Samples, Stata Technical Bulletin, 13, pp. 19-23.
Romer P.M (1990): Endogenous Technological Change, Journal of Political Economy, 94(5), pp. 71-102.
Rao B, Tamazian, Artur & Vadlamannati, Krishna Chaitanya (2009): Growth, FDI and Policy Reforms: Empirical evidence from Latin America, unpublished manuscript, USC.
Sachs, J.D. and Warner, A. M. (1995): Economic Reform and the Process of Global Integration, Brookings Papers on Economic Activity, 1-118.
Saha, N. (2005): Three Essays on Foreign Direct Investment and Economic Growth in Developing Countries, Utah State University. Logan, Utah.
Sala-i-Martin (1997): I just ran four million regressions, American Economic Review, 87, pp. 178-183.
Solow, Robert (1956): A Contribution to the Theory of Economic Growth, Quarterly Journal of Economics, 70, 65-94.
Sprout, R.V.A & Weaver, J.H (1993): Exports & Economic Growth in a Simultaneous Equations Model, Journal of Developing Areas, 28(4), pp. 289-306.
Stem, N. (1991): The Determinants of Growth, Economic Journal, 101 (January), pp. 122-133.
Torstensson, J. (1994): Property Rights and Economic Growth: An Empirical Study, Kyklos, 47 (2), pp. 231-247.
Vadlamannati, Krishna Chaitanya, Haider A Khan & Tamazian, Artur (2009): Growth effects of FDI in Africa – The Role of Government Policy, unpublished manuscript, USC.
Vadlamannati, Krishna Chaitanya & Tamazian, Artur (2009): Growth effects of FDI and Policy Reforms in Latin America, unpublished manuscript, USC.
Van den Berg, H (1996): Trade as the Engine of Growth in Asia: What the Econometric Evidence Reveals, Journal of Economic Integration, 11, pp. 510-538.
Wang, J.Y (1990): Growth, technology transfer and the long run theory of international capital movements, Journal of International Economics, 29, pp. 255-271.
Whyman, P. & Baimbridge M (2006): Labour Market Flexibility & FDI, UK Department of Trade & Industry, Employment Relations Occasional Paper URN 06/1797.
Williams, Rick L (2000): A Note on Robust Variance Estimation for Cluster-correlated Data, Biometrics, 56, pp. 645-46.
Winters, A. (2004): Trade liberalization and economic performance: An overview, Economic Journal, 114(493): F4-F21. White, H. (1980): A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity, Econometrica, 48 (4), pp. 817-838.
Zhang, K. H. (2001): Does Foreign Direct Investment Promote Economic Growth? Evidence from East Asia and Latin America, Contemporary Economic Policy 19, 175-18