FDI Spillovers, Financial Markets, and Economic Development

Author/Editor:

Selin Sayek ; Laura Alfaro ; Areendam Chanda ; Sebnem Kalemli-Ozcan

Publication Date:

September 1, 2003

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper examines the role financial markets play in the relationship between foreign direct investment (FDI) and economic development. We model an economy with a continuum of agents indexed by their level of ability. Agents can either work for the foreign company or undertake entrepreneurial activities, which are subject to a fixed cost. Better financial markets allow agents to take advantage of knowledge spillovers from FDI, magnifying the output effects of FDI. Empirically, we show that well-developed financial markets allow significant gains from FDI, while FDI alone plays an ambiguous role in contributing to development.

Series:

Working Paper No. 2003/186

Subject:

Balance of payments Economic sectors Financial markets Financial sector Financial sector development Foreign corporations Foreign direct investment Stock markets

Frequency:

Annually

English

Publication Date:

September 1, 2003

ISBN/ISSN:

9781451859485/1018-5941

Stock No:

WPIEA1862003

Pages:

32

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