FDI and Total Factor Productivity: Does the trajectory of FDI matter?
Journal: Financial Innovation
Year: 2026

Abstract This study revisits the relationship between foreign direct investment (FDI) and total factor productivity (TFP) growth in two distinct ways. First, it employs a dynamic heterogeneous panel threshold model to examine potential threshold effects of FDI on TFP. Second, and more critically, it investigates whether the trajectory of FDI influences this relationship. Using a sample of 71 developed and developing countries over the period 1980–2014, the study reveals new insights. For develop