Table 3: FDI and Growth: Panel Data Regressions

||(1)|(2)|(3)|(4)|(5)|(6)|
|---|---|---|---|---|---|---|
|FDI|0.079**|0.001|0.321***|0.063**|0.063**|-0.014|
||(0.035)|(0.017)|(0.105)|(0.026)|(0.029)|(0.015)|
|_GDPt−_1|-0.747***|-4.959***|-1.092***|-6.758***|-0.672***|-5.750***|
||(0.199)|(0.493)|(0.351)|(0.754)|(0.198)|(0.840)|
|Pr. Cr.|0.567**|0.242|0.985**|0.511*|0.389|0.003|
||(0.258)|(0.174)|(0.377)|(0.270)|(0.256)|(0.166)|
|School.|2.284***|-1.393|4.219***|2.402|2.102***|-1.275|
||(0.488)|(0.850)|(1.105)|(2.000)|(0.451)|(1.127)|
|Inf.|-0.123|-0.125*|-0.108|-0.060|-0.095|-0.111*|
||(0.089)|(0.065)|(0.116)|(0.070)|(0.109)|(0.060)|
|Trade|-0.278|0.701***|-0.056|0.496|-0.505|0.349|
||(0.335)|(0.242)|(0.329)|(0.305)|(0.297)|(0.299)|
|Govt. Cons.|-0.627*|-0.004|-0.490|-0.368|-0.684*|0.324|
||(0.315)|(0.264)|(0.484)|(0.286)|(0.341)|(0.365)|
|B. M. P.|0.386|0.048|0.814|0.242|-0.003|0.045|
||(0.866)|(0.654)|(1.036)|(0.617)|(1.013)|(0.711)|
|N. Obs|3,098|3,098|1,092|1,091|2,079|2,079|
|Year FE|Yes|Yes|Yes|Yes|Yes|Yes|
|Country FE|No|Yes|No|Yes|No|Yes|
|Sample|All Years|All Years|1970-99|1970-99|1999-2018|1999-2018|

**Notes:** This table reports a set of panel data regressions where the dependent variable is the average growth rate of real annual GDP per capita over a 10-year period and the explanatory variables are the lagged values of: net FDI inflows as a percentage of GDP; credit to the private sector by deposit money banks as a percentage of GDP (this variables is scaled by 100); the log of average years of secondary schooling in adult population; the log of initial GDP per capita; the log of inflation; the log of export plus import over GDP; the log of government expenditure over GDP; and the log of the black market premium. The first 10-year panel starts in 1970, and we include data up to 2018. Columns 1, 3, and 5 include year fixed effects, columns 2, 4, and 6 include country and year fixed effects. Robust standard errors double clustered at the country and year level are in parentheses. Significance levels are denoted as: *** p _<_ 0.01, ** p _<_ 0.05, * p _<_ 0.1.

Figure 6 reports the coefficient estimates for the interaction terms themselves. Panels a and b show the coefficients for the interaction between FDI and credit. These are never statistically significant when only year fixed effects are included. However, they are significant in the early estimation windows when we include both country and year fixed effects (panel b).<sup>9</sup> When we look at the interaction between FDI and schooling (panels c and d), we find that the coefficient is never statistically significant. In the regressions without country fixed effects, it becomes close to being marginally significant towards the end of the period. It is however negative, indicating that high levels of education reduce the correlation between FDI and growth (panel c).

# **4 Endogeneity**

Regressions with country fixed effects allow to control for time-invariant factors that are jointly correlated with FDI inflows and GDP growth. However, they cannot fully address endogeneity because they do not allow controlling for unobserved variables that change over time and are jointly correlated with FDI flows and GDP growth. Here, we address this issue with a new instrument for FDI

> 9The interaction effect is never statistically significant when we use all possible 10-year growth spells between 1970 and 2018, see columns 1 and 2 of Appendix Table B.1.

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