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NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Publications by Selin Sayek

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September 2006How Does Foreign Direct Investment Promote Economic Growth? Exploring the Effects of Financial Markets on Linkages
with Laura Alfaro, Areendam Chanda, Sebnem Kalemli-Ozcan: w12522
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 ...

Contact and additional information for this authorAll papers and publicationsWorking Papers onlyWorking Papers with publication info

 
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