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Foreign Direct Investment and Total Factor Productivity Growth: New Macro‐Evidence
Author(s) -
Baltabaev Botirjan
Publication year - 2014
Publication title -
the world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/twec.12115
Subject(s) - foreign direct investment , endogeneity , economics , stock (firearms) , panel data , total factor productivity , productivity , frontier , monetary economics , international economics , macroeconomics , econometrics , mechanical engineering , history , archaeology , engineering
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.