Growth and the quality of foreign direct investment
Subtitle: is all FDI equal
By: Laura Alfaro, Andrew Charlton
Contributors: Charlton, Andrew (Andrew Henry George), 1978-; Harvard Business School. Division of Research
Series: Working paper / Division of Research, Harvard Business School -- 07-072; Working paper (Harvard Business School. Division of Research) -- 07-072
Publisher: Division of Research, Harvard Business School
Published: 2007
Place of publication: Boston
Language: eng
Number of pages: 26
Description: In this paper we distinguish different "qualities" of FDI to re-examine the relationship between FDI and growth. We use 'quality' to mean the effect of a unit of FDI on economic growth. However, this is difficult to establish because it is a function of many different country and project characteristics which are often hard to measure. Hence, we differentiate "quality FDI" in several different ways. First, we look at the possibility that the effects of FDI differ by sector. Second, we differentiate FDI based on objective qualitative industry characteristics including the average skill intensity and reliance on external capital. Third, we use a new dataset on industry-level targeting to analyze quality FDI based on the subjective preferences expressed by the receiving countries themselves. Finally, we use a two-stage least squares methodology to control for measurement error and endogeneity. Exploiting a new comprehensive industry level data set of 29 countries between 1985 and 2000, we find that the growth effects of FDI increase when we account for the quality of FDI.
Notes: "April 2007"--Added t.p.

Includes bibliographical references.