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Are foreign companies a blessing or a curse for local development in Brazil? It depends on the home country and host region's institutions
Author(s) -
PolloniSilva Eduardo,
Moralles Herick Fernando,
Rebelatto Daisy Aparecida do Nascimento,
Hartmann Dominik
Publication year - 2021
Publication title -
growth and change
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.657
H-Index - 55
eISSN - 1468-2257
pISSN - 0017-4815
DOI - 10.1111/grow.12484
Subject(s) - foreign direct investment , nexus (standard) , curse , latin americans , blessing , business , emerging markets , panel data , human development (humanity) , development economics , developing country , economics , economic growth , international economics , economic geography , geography , political science , macroeconomics , finance , archaeology , sociology , computer science , anthropology , law , econometrics , embedded system
Latin America is an important destination for foreign direct investment (FDI). The debate on whether FDI is beneficial or harmful to the region is ongoing. Our study investigates how institutions from the home country and the host region affect the FDI‐human development nexus in Brazil. Specifically, we employ a unique data set comprising 92 municipalities and companies from 52 countries. We use threshold regressions to scrutinize the heterogeneous effects of FDI on the municipalities' income, education, health, and productivity levels. Our results indicate that locations with a high concentration of companies from countries with well‐developed institutions tend to experience a more positive effect of FDI on local development than regions with a high concentration of companies from emerging economies with less developed institutions. This effect is nonlinear, though, and more significant in institutionally weak regions. Our findings suggest that the FDI‐human development nexus is neither always positive or negative. Instead, it varies depending on which human development aspect is being analyzed and on institutions. Finally, we discuss policy implications for Brazil and Latin America.