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Growth and the quality of foreign direct investment: is all FDI equal?

Alfaro, Laura and Charlton, Andrew (2007) Growth and the quality of foreign direct investment: is all FDI equal? CEPDP, 830. Centre for Economic Performance, London School of Economics and Political Science, London, UK. ISBN 9780853280958

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Abstract

In this paper we distinguish different “qualities” of FDI to re-examine the relationship between FDI and growth. We use ‘quality’ to mean the effect of a unit of FDI on economic growth. However this is difficult to establish because it is a function of many different country and project characteristics which are often hard to measure Hence, we differentiate “quality FDI” in several different ways. First, we look at the possibility that the effects of FDI differ by sector. Second, we differentiate FDI based on objective qualitative industry characteristics including the average skill intensity and reliance on external capital. Third, we use a new dataset on industry-level targeting to analyze quality FDI based on the subjective preferences expressed by the receiving countries themselves. Finally, we use a two-stage least squares methodology to control for measurement error and endogeneity. Exploiting a new comprehensive industry level data set of 29 countries between 1985 and 2000, we find that the growth effects of FDI increase when we account for the quality of FDI.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk
Additional Information: © 2007 the authors
Library of Congress subject classification: H Social Sciences > HG Finance
H Social Sciences > HD Industries. Land use. Labor
Journal of Economic Literature Classification System: F - International Economics > F3 - International Finance > F36 - Financial Aspects of Economic Integration
F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F43 - Economic Growth of Open Economies
O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General
F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms; International Business
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 830
Date Deposited: 18 Jul 2008 14:32
URL: http://eprints.lse.ac.uk/19666/

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