Alessia A. Amighini
Department of Economics and Business
Università del Piemonte Orientale
Institutional Affiliation: Università del Piemonte Orientale
NBER Working Papers and Publications
|January 2017||FDI and Capital Formation in Developing Economies: New Evidence from Industry-level Data|
with Margaret S. McMillan, Marco Sanfilippo: w23049
We contribute to the long debated issue of whether inward foreign direct investment (FDI) can stimulate investment in developing countries by introducing a novel measure of FDI, based on industry-level data. Our results suggest a positive impact of FDI on total investment – measured as the ratio of gross fixed capital formation to GDP – but only if multinational enterprises engage in manufacturing production; the same does not hold for other business activities. Moreover, we find evidence of a more beneficial impact of foreign investors from advanced economies compared to developing ones. Our results are robust to alternative measures of FDI, as well as to instrumental variable approaches accounting for the potential endogeneity of FDI.