Governments often promote inward foreign investment to encourage technology 'spillovers' from foreign to domestic firms. Using panel data on Venezuelan plants, the authors find that foreign equity participation is positively correlated with plant productivity (the 'own-plant' effect), but this relationship is only robust for small enterprises. They then test for spillovers from joint ventures to plants with no foreign investment. Foreign investment negatively affects the productivity of domestically owned plants. The net impact of foreign investment, taking into account these two offsetting effects, is quite small. The gains from foreign investment appear to be entirely captured by joint ventures.

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Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela

This paper uses new statistical techniques and two new databases to reassess the relationship between ,, , , , () ' −= − + + +

/pdf/does-foreign-direct-investment-accelerate-economic-growth-27mjs5uxhg.pdf

Does Foreign Direct Investment Accelerate Economic Growth

The recent wave of financial globalization since the mid-1980s has been marked by a surge in capital flows among industrial countries and, more notably, between industrial and developing countries. While these capital flows have been associated with high growth rates in some developing countries, a number of countries have experienced periodic collapse in growth rates and significant financial crises over the same period, crises that have exacted a serious toll in terms of macroeconomic and social costs. As a result, an intense debate has emerged in both academic and policy circles on the effects of financial integration for developing economies. But much of the debate has been based on only casual and limited empirical evidence.

/pdf/effects-of-financial-globalization-on-developing-countries-4fgndpscel.pdf

Effects of Financial Globalization on Developing Countries: Some Empirical Evidence

Governments the world over offer significant inducements to attract investment, motivated by the expectation of spillover benefits to augment the primary benefits of a boost to national income from new investment. There are several possible sources of induced spillovers from foreign direct investment. This article evaluates the empirical evidence on productivity, wage, and export spillovers in developing, developed, and transition economies. Although theory can identify a range of possible spillover channels, robust empirical support for positive spillovers is at best mixed. The article explores the reasons and concludes with a review of policy aspects.

/pdf/much-ado-about-nothing-do-domestic-firms-really-benefit-from-77tms2nlmt.pdf

Much ado about nothing? do domestic firms really benefit from foreign direct investment?

Data from several investor surveys suggest that macroeconomic instability, investment restrictions, corruption and political instability have a negative impact on foreign direct investment (FDI) to Africa. However, the relationship between FDI and these country characteristics has not been studied. This paper uses panel data for 22 countries over the period 1984–2000 to examine the impact of natural resources, market size, government policies, political instability and the quality of the host country's institutions on FDI. It also analyses the importance of natural resources and market size vis-a-vis government policy and the host country's institutions in directing FDI flows. The main result is that natural resources and large markets promote FDI. However, lower inflation, good infrastructure, an educated population, openness to FDI, less corruption, political stability and a reliable legal system have a similar effect. A benchmark specification shows that a decline in the corruption from the level of Nigeria to that of South Africa has the same positive effect on FDI as increasing the share of fuels and minerals in total exports by about 35 per cent. These results suggest that countries that are small or lack natural resources can attract FDI by improving their institutions and policy environment.

https://www.econstor.eu/bitstream/10419/63499/1/500782164.pdf

Foreign Direct Investment in Africa: The Role of Natural Resources, Market Size, Government Policy, Institutions and Political Instability

FDI and Economic Growth: The Role of Local Financial Markets*

In this paper, we examine the various links among foreign direct investment (FDI), financial markets, and economic growth We explore whether countries with better financial systems can exploit FDI more efficiently Empirical analysis, using crosscountry data between 1975- 1995, shows that FDI alone plays an ambiguous role in contributing to economic growth However, countries with well-developed financial markets gain significantly from FDI The results are robust to different measures of financial market development, the inclusion of other determinants of economic growth, and consideration of endogeneity

https://www.econ.umd.edu/sites/www.econ.umd.edu/files/pubs/fdi_may18_09.pdf

Does foreign direct investment promote growth? Exploring the role of financial markets on linkages

This paper examines the effect of foreign direct investment (FDI) on growth Factor accumulation - physical and human capital - does not seem to be the main channel through which countries benefit f rom FDI. Instead, we f ind that countries with well-developed financial markets gain significantly

/pdf/fdi-productivity-and-financial-development-2pw1o1bp2t.pdf

FDI, Productivity and Financial Development

The empirical literature finds mixed evidence on the existence of positive productivity externalities in the host country generated by foreign multinational companies. We propose a mechanism that emphasizes the role of local financial markets in enabling foreign direct investment (FDI) to promote growth through backward linkages, shedding light on this empirical ambiguity. In a small open economy, final goods production is carried out by foreign and domestic firms, which compete for skilled labor, unskilled labor, and intermediate products. To operate a firm in the intermediate goods sector, entrepreneurs must develop a new variety of intermediate good, a task that requires upfront capital investments. The more developed the local financial markets, the easier it is for credit constrained entrepreneurs to start their own firms. The increase in the number of varieties of intermediate goods leads to positive spillovers to the final goods sector. As a result financial markets allow the backward linkages between foreign and domestic firms to turn into FDI spillovers. Our calibration exercises indicate that a) holding the extent of foreign presence constant, financially well-developed economies experience growth rates that are almost twice those of economies with poor financial markets, b) increases in the share of FDI or the relative productivity of the foreign firm leads to higher additional growth in financially developed economies compared to those observed in financially under-developed ones, and c) other local conditions such as market structure and human capital are also important for the eect of FDI on economic growth.

/pdf/how-does-foreign-direct-investment-promote-economic-growth-4d5g3xcmvl.pdf

Selin Sayek

Papers

FDI and Economic Growth: The Role of Local Financial Markets*

FDI and Economic Growth: The Role of Local Financial Markets*

Does foreign direct investment promote growth? Exploring the role of financial markets on linkages

FDI, Productivity and Financial Development

How does foreign direct investment promote economic growth? exploring the effects of financial markets on linkages