NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Transition to FDI Openness: Reconciling Theory and Evidence

Ellen R. McGrattan

NBER Working Paper No. 16774
Issued in February 2011
NBER Program(s):   AP   EFG

Empirical studies quantifying the economic effects of increased foreign direct investment (FDI) have not provided conclusive evidence that they are positive, as theory predicts. This paper shows that the lack of empirical evidence is consistent with theory if countries are in transition to FDI openness. Anticipated welfare gains lead to temporary declines in domestic investment and employment. Also, growth measures miss some intangible FDI, which is expensed from company profits. The reconciliation of theory and evidence is accomplished with a multicountry dynamic general equilibrium model parameterized with data from a sample of 104 countries during 1980-2005. Although no systematic benefits of FDI openness are found, the model demonstrates that the eventual gains in growth and welfare can be huge, especially for small countries.

download in pdf format
   (374 K)

email paper

This paper is available as PDF (374 K) or via email.

An data appendix is available at http://www.nber.org/data-appendix/w16774

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w16774

Published: Ellen McGrattan, 2012. "Transition to FDI Openness: Reconciling Theory and Evidence," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(4), pages 437-458, October. citation courtesy of

Users who downloaded this paper also downloaded these:
Du, Harrison, and Jefferson w16767 FDI Spillovers and Industrial Policy: The Role of Tariffs and Tax Holidays
Blonigen w11299 A Review of the Empirical Literature on FDI Determinants
Blonigen and Piger w16704 Determinants of Foreign Direct Investment
Aizenman and Noy w11403 FDI and Trade -- Two Way Linkages?
Weisbrod and Whalley w17544 The Contribution of Chinese FDI to Africa's Pre Crisis Growth Surge
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us