FDI, productivity and financial development

Date

2009

Authors

Alfaro, L.
Ozcan, S. K.
Sayek, S.

Editor(s)

Advisor

Supervisor

Co-Advisor

Co-Supervisor

Instructor

Source Title

World Economy

Print ISSN

0378-5920

Electronic ISSN

1467-9701

Publisher

Wiley-Blackwell Publishing Ltd.

Volume

32

Issue

1

Pages

111 - 135

Language

English

Journal Title

Journal ISSN

Volume Title

Series

Abstract

This paper examines the effect of foreign direct investment (FDI) on growth by focusing on the complementarities between FDI inflows and financial markets. In our earlier work, we found that FDI is beneficial for growth only if the host country has well-developed financial institutions. In this paper, we investigate whether this effect operates through factor accumulation and/or improvements in total factor productivity (TFP). Factor accumulation - physical and human capital - does not seem to be the main channel through which countries benefit from FDI. Instead, we find that countries with well-developed financial markets gain significantly from FDI via TFP improvements. These results are consistent with the recent findings in the growth literature that shows the important role of TFP over factors in explaining cross-country income differences. © 2009 The Authors Journal compilation © 2009 Blackwell Publishing Ltd.

Course

Other identifiers

Book Title

Citation