NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

How Does Foreign Direct Investment Affect Economic Growth?

Eduardo Borensztein, Jose De Gregorio, Jong-Wha Lee

NBER Working Paper No. 5057
Issued in March 1995
NBER Program(s):   EFG   ITI

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.

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Document Object Identifier (DOI): 10.3386/w5057

Published: Borensztein, E., J. De Gregorio and J. W. Lee. "How Does Foreign Direct Investment Affect Economic Growth?," Journal of International Economics, 1998, v45(1,Jun), 115-135.

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