Foreign Direct Investment and Economic Growth in Developing Countries: How Relevant are Host-Country and Industry Characteristics?

Kiel Working Paper No. 1176

48 Pages Posted: 27 Aug 2003

Date Written: July 2003

Abstract

Conclusive evidence supporting the widely held view that developing countries should draw on foreign direct investment (FDI) to spur economic development is surprisingly hard to come by. We raise the proposition that results on the growth impact of FDI are ambiguous because highly aggregated FDI data, used in virtually all previous empirical studies, blur the differences between resource-seeking, market-seeking and efficiency-seeking FDI and ignore the compatibility of different types of FDI with economic conditions prevailing in the host country. Analysing US FDI stocks in major sectors and specific manufacturing industries in a large number of developing countries, we show that positive growth effects of FDI are anything but guaranteed. Rather, host-country and industry characteristics as well as the interplay between both sets of characteristics have an important say on the growth impact of FDI in developing countries.

Keywords: foreign direct investment stocks, resource-seeking, market-seeking and efficiency-seeking FDI, host-country characteristics, industry characteristics, economic growth effects

JEL Classification: F21

Suggested Citation

Nunnenkamp, Peter and Spatz, Julius, Foreign Direct Investment and Economic Growth in Developing Countries: How Relevant are Host-Country and Industry Characteristics? (July 2003). Kiel Working Paper No. 1176, Available at SSRN: https://ssrn.com/abstract=425260 or http://dx.doi.org/10.2139/ssrn.425260

Peter Nunnenkamp

University of Kiel ( email )

D-24100 Kiel
Germany

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