rather than on the more indirect GDP related spillover effects that has been the focus of most empirical studies on FDI flows undertaken hitherto. ii. The paper contributes to the advancement on the knowledge frontier on cross-border MNC-FDI flows by analyzing spillover using for the first time a multiplicatively complete index, which enables the decomposition o of technological change due to FDI flows into measurable spillover effects in the form of scale economies and technical efficiency. iv. The empirical results reported in this paper are fully cognizant of the consequences of the divergence in the absorptive capacity in host and source countries for metabolizing and generating spillover effects. In particular developing countries lack the human capital, infrastructure , banking and financial institutions and business ethos that gives OECD countries a head start over developing countries in attracting MNC-FDI flows. iv. The empirical results of the study have taken account of both the crowding-in and crowding-effects on domestic firms of both FDI inflows and outflows in a symmetric manner unlike many other studies that have focused only on one side of the coin .v. Finally the empirics in the paper are based on the compilation of an up-to-date and comprehensive panel database from the most authoritative international and national databases that have been published recently . The stylized facts reported in Table 1 indicate that over the past three decades since the 1980s world FDI outward stocks and inward stocks have increased more than 25-fold and 30-fold, respectively. The growth of both inward and outward FDI stocks for the world has outstripped the growth rates of GDP and exports after registering temporary drops during the Asian Financial Crisis (1997) and the Global Financial Crisis (2007). It is noteworthy that for advanced countries, FDI flows exceeded the growth rates of GDP and exports and these strong growth trends are likely to continue into the foreseeable future. Although the Asian Financial Crisis (1997) and the Global Financial Crisis (2007) caused a dent in the inward and outward stocks of FDI, the stylized facts reported in Table 1 show that bi-directional flows have grown
The regression results from the from 9 sets of regressions using feasible GLS estimation with cross-country weights are reported in Table 6. Regression models referred in column (1) to (6) uses time-invariant GDP per capita (GDPPC) or the Barro effect, The results reported for regression models in columns ((7) to (9) are based on cross-country specific fixed effects model. The standard errors have been estimated using White’ s heteroscedasticity covariance estimates that are robust to general heteroscedasticity. The regression models estimated with the time-invariant initial conditions (or Barro-effect) do not provide efficient estimators. But the regression models for cross-country specific effect models provide efficient estimators and therefore we focus mainly on these results for analyzing the TFP spillover effects due to FDI inward and outward stocks. Regression equation (7) includes inward FDI (FDII) but excludes the outward FDI (FDIO), while equation (8) includes FDIO but excludes FDII. Equation (9) includes both inward and outward FDI stocks. The regression coefficients for FDII and FDIO have positive and significant impacts on the TFP growth variable. The results from equation (9) are undermined by the multicollineaity between growth rates of FDII and FDIO. The value for the growth of FDII is 0.01 implying that 1% increase in growth of FDI inward stock results in growth of TFP by 0.01 percent. The coefficient of FDIO or growth of outward stock of FDI is also around 0.01 and is significant. Besides, R&D (GERD), capital formation (CAPF) also have positive effects on growth TFP as expected. The control variables relating to policy proxied by government expenditure (GOVX) , inflation (INFL) and business cycle effects due to unemployment ( 1-1/EMP) all have negative effects on TFP growth as expected. The interaction term is not statistically significant and the regression results fail the residual test. Given that the sample of countries have attained the same threshold level of absorptive capacity )