How Does Foreign Direct Investment Affect Economic Growth

Author/Editor:

Jong-Wha Lee ; Jose De Gregorio ; Eduardo Borensztein

Publication Date:

September 1, 1994

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:

We test the effect of foreign direct investment (FDI) on economic growth in a cross-country regression framework, utilizing data on FDI flows from industrial countries to 69 developing countries over the last two decades. Our results suggest that FDI is an important vehicle for the transfer of technology, contributing relatively more to growth than domestic investment. However, the higher productivity of FDI holds only when the host country has a minimum threshold stock of human capital. In addition, FDI has the effect of increasing total investment in the economy more than one for one, which suggests the predominance of complementarity effects with domestic firms.

Series:

Working Paper No. 1994/110

Subject:

Education Foreign corporations Foreign direct investment Human capital Technology

English

Publication Date:

September 1, 1994

ISBN/ISSN:

9781451853278/1018-5941

Stock No:

WPIEA1101994

Pages:

26

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