How does foreign direct investment affect economic growth?

E. Borensztein, J. De Gregorio, J. W. Lee

Research output: Contribution to journalArticle

2090 Citations (Scopus)

Abstract

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. Thus, FDI contributes to economic growth only when a sufficient absorptive capability of the advanced technologies is available in the host economy.

Original languageEnglish
Pages (from-to)115-135
Number of pages21
JournalJournal of International Economics
Volume45
Issue number1
DOIs
Publication statusPublished - 1998 Jun 1

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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