Information and communication technology and foreign direct investment: interactions and contributions to economic growth

This study explores the joint effect of FDI and domestic capital stocks (ICT and non-ICT) on productivity and economic growth, by incorporating two additions to the recent literature. Firstly, biases due to the fact that the observed measures of domestic capital stocks have an FDI component (double counting) are taken into account, and secondly, the possibility that the effect may be heterogeneous. Using semiparametric econometric techniques, the output elasticities for 15 OECD countries for the period 1980–2004 are estimated. The results indicate that biases do exist and they are significant. When corrected, the effects of all three types of capital are positive, significant, and they vary across countries and time. Furthermore, there exist interactions between the three capital variables, implying a complimentary relationship between domestic (ICT and non-ICT) and FDI capital. Additionally, the rates of return to FDI are high and heterogeneous, suggesting that in most countries, there is need for more investment.

[1]  Bin Xu.  Multinational enterprises, technology diffusion, and host country productivity growth , 2000 .

[2]  P. Burridge,et al.  Relationships between economic growth, foreign direct investment and trade: evidence from China , 2002 .

[3]  Jianqing Fan.  Design-adaptive Nonparametric Regression , 1992 .

[4]  Azmat Gani,et al.  The effects of information technology achievement and diffusion on foreign direct investment , 2003 .

[5]  Mary O'Mahony,et al.  Productivity, Workplace Performance and ICT: Industry and Firm-Level Evidence for Europe and the Us , 2005 .

[6]  A. Heshmati,et al.  The Causal Relationship between Information and Communication Technology and Foreign Direct Investment , 2006 .

[7]  Susanto Basu,et al.  The Case of the Missing Productivity Growth: Or, Does Information Technology Explain Why Productivity Accelerated in the Us But Not the UK? , 2003 .

[8]  D. Siegel.  The Impact of Computers on Manufacturing Productivity Growth: A Multiple-Indicators, Multiple-Causes Approach , 1997, Review of Economics and Statistics.

[9]  Thanasis Stengos,et al.  Nonlinearities in economic growth: A semiparametric approach applied to information technology data , 2007 .

[10]  Kwan Wai Ko,et al.  Internet externalities and location of foreign direct investment: A comparison between developed and developing countries , 2007, Inf. Econ. Policy.

[11]  D. Pilat,et al.  The OECD Productivity Database: An Overview , 2004 .

[12]  Production Function Estimation: Reviving the Primal , 1996 .

[13]  Yanqin Fan,et al.  Consistent model specification tests : Omitted variables and semiparametric functional forms , 1996 .

[14]  Theodore H. Moran,et al.  Does foreign direct investment promote development , 2005 .

[15]  Ari Kokko,et al.  Host country competition, labor skills, and technology transfer by multinationals , 1994 .

[16]  Mark Schankerman,et al.  The effects of double-counting and expensing on the measured returns to r&d , 1981 .

[17]  Andreas Savvides,et al.  Economic Development and the Return to Human Capital: A Smooth Coefficient Semiparametric Approach , 2006 .

[18]  Suojin Wang,et al.  A simple consistent bootstrap test for a parametric regression function , 1998 .

[19]  Pantelis Kalaitzidakis,et al.  Measures of Human Capital and Nonlinearities in Economic Growth , 2001 .

[20]  Changkyu Choi.  Does the Internet stimulate inward foreign direct investment , 2003 .

[21]  J. Seo,et al.  Does FDI inflow crowd out domestic investment in Korea , 2003 .

[22]  David Sapsford,et al.  Foreign Direct Investment and Growth in EP and IS Countries , 1996 .

[23]  K. Stiroh.  Information Technology and the U.S. Productivity Revival: What Do the Industry Data Say? , 2001 .

[24]  Steven N. Durlauf,et al.  Multiple regimes and cross‐country growth behaviour , 1995 .

[25]  Seung-Hoon Yoo.  Does information technology contribute to economic growth in developing countries? a cross-country analysis , 2003 .

[26]  J. Durham,et al.  Absorptive capacity and the effects of foreign direct investment and equity foreign portfolio investment on economic growth , 2004 .

[27]  B. Sanchez-Robles,et al.  Foreign Direct Investment, Economic Freedom and Growth: New Evidence from Latin-America , 2002 .

[28]  Elena Ketteni.  Information Technology and Economic Performance in U.S Industries , 2009 .

[29]  T. Stengos,et al.  Non‐linearities in cross‐country growth regressions: a semiparametric approach , 1999 .

[30]  J. Shan.  A VAR approach to the economics of FDI in China , 2002 .

[31]  Allan Drazen,et al.  Threshold Externalities in Economic Development , 1990 .

[32]  Ari Kokko,et al.  Host Country Competition and Technology Transfer by Multinationals , 1992 .

[33]  Bruno Crépon,et al.  How do firms respond to cheaper computers ? Microeconometric evidence for France based on a production function approach , 2002 .

[34]  Selin Sayek,et al.  FDI and Economic Growth : The Role of Local Financial Markets * , 2000 .

[35]  Rupert Harrison,et al.  ICT and Productivity in Developing Countries: New Firm-Level Evidence from Brazil and India , 2011, Review of Economics and Statistics.

[36]  M. Carkovic,et al.  Does Foreign Direct Investment Accelerate Economic Growth? , 2002 .

[37]  J. Boyd,et al.  Intermediation and the equilibrium allocation of investment capital: Implications for economic development , 1992 .

[38]  Jianqing Fan,et al.  Statistical Estimation in Varying-Coefficient Models , 1999 .

[39]  Dale W. Jorgenson,et al.  Information Technology, Education, and the Sources of Economic Growth across U.S. Industries , 2002 .

[40]  A. Heshmati,et al.  The New Global Determinants of FDI Flows to Developing Countries , 2003 .

[41]  L. Mello,et al.  Foreign Direct Investment-Led Growth: Evidence from Time Series and Panel Data , 1996 .

[42]  Qi Li,et al.  Semiparametric Smooth Coefficient Models , 2002 .

[43]  A. Barua,et al.  The Information Technology Productivity Paradox Revisited: A Theoretical and Empirical Investigation in the Manufacturing Sector , 1997 .