FDI and Economic Growth: The Role of Local Financial Markets

In this paper, we examine the various links among foreign direct investment (FDI), financial markets, and economic growth. We explore whether countries with better financial systems can exploit FDI more efficiently. Empirical analysis, using crosscountry data between 1975- 1995, shows that FDI alone plays an ambiguous role in contributing to economic growth. However, countries with well-developed financial markets gain significantly from FDI. The results are robust to different measures of financial market development, the inclusion of other determinants of economic growth, and consideration of endogeneity.

[1]  N. Hermes,et al.  Foreign direct investment, financial development and economic growth , 2003 .

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

[3]  Bent E. Sørensen,et al.  Risk Sharing and Industrial Specialization: Regional and International Evidence , 2000 .

[4]  A. Rodrı́guez-Clare,et al.  Intel: A Case Study of Foreign Direct Investment in Central America , 2000 .

[5]  Lee Branstetter,et al.  Is Foreign Direct Investment a Channel of Knowledge Spillovers? Evidence from Japan&Apos;S FDI in the United States , 2000 .

[6]  T. Beck,et al.  A New Database on the Structure and Development of the Financial Sector , 2000 .

[7]  Bin Xu,et al.  Multinational Enterprises, Technology Diffusion, and Host Country Productivity Growth , 2000 .

[8]  R. Hausmann,et al.  Aid, Taxation, and Development: Analytical Perspectives on Aid Effectiveness in Sub-Saharan Africa , 1997 .

[9]  D. Dasgupta,et al.  What factors appear to drive private capital flows to developing countries? and how does official lending respond? , 1999 .

[10]  Beata K. Smarzynska,et al.  Corruption and the Composition of Foreign Direct Investment: Firm-Level Evidence , 1999 .

[11]  Jeffrey Wurgler,et al.  Financial Markets and the Allocation of Capital , 1999 .

[12]  Ann E. Harrison,et al.  Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela , 1999 .

[13]  T. Beck,et al.  A New Database on Financial Development and Structure , 1999 .

[14]  R. Caves.  Spillovers from Multinationals in Developing Countries: the Mechanisms at Work , 1999 .

[15]  Joan Feeney.  International risk sharing, learning by doing, and growth , 1999 .

[16]  Peter Thompson,et al.  Reassessing the empirical validity of the human-capital augmented neoclassical growth model , 1999 .

[17]  T. Beck,et al.  Financial Intermediation and Growth: Causality and Causes , 1999 .

[18]  T. Beck,et al.  Finance and the Sources of Growth , 1999 .

[19]  Thomas F. Cooley,et al.  Financial markets, specialization, and learning by doing , 1998 .

[20]  L. Tesar,et al.  Multinationals and the Gains from International Diversification , 1998 .

[21]  S. Wei.  Why is Corruption so Much More Taxing than Tax? Arbitrariness Kills , 1997 .

[22]  Daron Acemoglu,et al.  Was Prometheus Unbound by Chance? Risk, Diversification, and Growth , 1997, Journal of Political Economy.

[23]  A. Shleifer,et al.  Legal Determinants of External Finance , 1997 .

[24]  R. Levine,et al.  Stock Markets, Banks, and Economic Growth , 1996 .

[25]  Luigi Zingales,et al.  Financial Dependence and Growth , 1996 .

[26]  Florencio López‐de‐Silanes,et al.  Law and Finance , 1996, Journal of Political Economy.

[27]  R. Barro,et al.  International Measures of Schooling Years and Schooling Quality , 1996 .

[28]  R. Barro,et al.  Technological Diffusion, Convergence, and Growth , 1995 .

[29]  J. Markusen.  The Boundaries of Multinational Enterprises and the Theory of International Trade , 1995 .

[30]  Elhanan Helpman,et al.  North-South R&D Spillovers , 1994, SSRN Electronic Journal.

[31]  G. Grossman,et al.  Technology and Trade , 1994 .

[32]  Carmen M. Reinhart,et al.  Inflows of Capital to Developing Countries in the 1990s: Causes and Effects , 1994 .

[33]  Jess Benhabib,et al.  The role of human capital in economic development Evidence from aggregate cross-country data , 1994 .

[34]  Jason G. Cummins,et al.  The Tax Sensitivity of Foreign Direct Investment: Evidence from Firm-Level Panel Data , 1994 .

[35]  Robert G. King,et al.  Finance, entrepreneurship and growth , 1993 .

[36]  G. Grossman,et al.  Innovation and growth in the global economy , 1993 .

[37]  H. Broadman,et al.  Finance and Growth: Schumpeter Might Be Right , 1993 .

[38]  Michael W. Klein,et al.  The Real Exchange Rate and Foreign Direct Investment in the United States: Relative Wealth vs. Relative Wage Effects , 1992 .

[39]  David Wheeler,et al.  International investment location decisions: The case of U.S. firms , 1992 .

[40]  M. Obstfeld.  Risk-Taking, Global Diversification, and Growth , 1992 .

[41]  G. Saint‐Paul.  Technological Choice, Financial Markets and Economic Development , 1992 .

[42]  X. Sala-i-Martin,et al.  Financial Repression and Economic Growth , 1991 .

[43]  P. Romer,et al.  Economic Integration and Endogenous Growth , 1990 .

[44]  Thérèse Bélot.  Export catalysts in low-income countries : a review of eleven success stories , 1990 .

[45]  Boyan Jovanovic,et al.  Financial Development, Growth, and the Distribution of Income , 1989, Journal of Political Economy.

[46]  Myron S. Scholes,et al.  The Effects of Changes in Tax Laws on Corporate Reorganization Activity , 1989 .

[47]  Kenneth A. Froot,et al.  Exchange Rates and Foreign Direct Investment: an Imperfect Capital Markets Approach , 1989 .

[48]  Edward C. Prescott,et al.  Financial intermediary-coalitions , 1986 .

[49]  E. Helpman.  Multinational Corporations and Trade Structure , 1985 .

[50]  Elhanan Helpman,et al.  A Simple Theory of International Trade with Multinational Corporations , 1984, Journal of Political Economy.

[51]  R. Caves,et al.  Multinational Enterprise and Economic Analysis: Preface , 2007 .

[52]  Fedesarrollo.  "Comentarios Bibliográficos: Mckinnon, Ronald l. "Money and capital in economic development" The Brookings Institution, Washington,D.C. 1973" , 1974 .

[53]  R. Goldsmith.  Financial Structure and Development , 1970 .

[54]  R. Vernon.  International investment and international trade in the product cycle , 1966 .

[55]  F. Lichtenberg,et al.  Economic Growth , 1957, The Journal of Economic History.

[56]  W. Easterly.  The Elusive Quest for Growth , 2001 .

[57]  Gordon H. Hanson.  Should Countries Promote Foreign Direct Investment , 2001 .

[58]  R. Lensink,et al.  Foreign direct investment , 2001 .

[59]  Plant,et al.  17753 Foreign Investment Advisory Service Occasional Paper 11 Attracting High Technology Investment Intel ' s , 2001 .

[60]  Bent E. Sørensen,et al.  Risk Sharing and Sectoral Specialization: Regional and International Evidence , 2000 .

[61]  K. Sauvant.  World Investment Report , 1999 .

[62]  Debora L. Spar,et al.  Attracting High Technology Investment: Intel's Costa Rican Plant , 1998 .

[63]  A. Rodrı́guez-Clare.  Multinationals, Linkages, and Economic Development , 1996 .

[64]  Joseph Zeira,et al.  Income Distribution and Macroeconomics , 1988 .

[65]  J. Stiglitz,et al.  Credit Rationing in Markets with Imperfect Information , 1981 .

[66]  Ronald I. McKinnon,et al.  Money and capital in economic development , 1973 .

[67]  J. Anjaria.  Strategy of economic development , 1971 .

[68]  Ana Cecília Fieler,et al.  Journal of International Economics , 2022 .

[69]  Mohammad Mejbahuddin,et al.  THE WORLD BANK , 2022 .