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Do Multinational Enterprises Contribute to Convergence or Divergence? A Disaggregated Analysis of US FDI *
Author(s) -
MayerFoulkes David,
Nunnenkamp Peter
Publication year - 2009
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/j.1467-9361.2009.00510.x
Subject(s) - foreign direct investment , economics , convergence (economics) , multinational corporation , per capita income , externality , per capita , international economics , monetary economics , human capital , endogenous growth theory , macroeconomics , market economy , microeconomics , population , demography , finance , sociology
It is widely held that foreign direct investment (FDI) has a positive effect on economic growth. To test this hypothesis, we perform convergence regressions derived from a theoretical model on the impact of FDI on endogenous technological change in small economies. The model includes FDI externalities that enhance growth, but also shows that FDI can crowd out host country income and reduce local innovation. The empirical analysis employs disaggregated US data for various FDI‐related activities—in addition to the conventionally used aggregate FDI stocks and flows. We estimate the net FDI impact on the convergence rate of per‐capita income to US levels, controlling for human development, financial development, and trade. We find that FDI accelerates convergence for high‐income countries only, otherwise slowing it down.