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留学生论文网:Foreign Direct Investment and Growth: Do

Foreign Direct Investment and Growth: Does the Sector Matter? *
Laura Alfaro
Harvard Business School
April 2003
Abstract
Although it may seem natural to argue that foreign direct investment (FDI) can convey great advantages to host countries, this paper shows that the benefits of FDI vary greatly across sectors by 留学生论文网examining the effect of foreign direct investment on growth in the primary, manufacturing, and services sectors. An empirical analysis using cross-country data for the period 1981-1999 suggests that total FDI exerts an ambiguous effect on growth. Foreign direct investments in the primary sector, however, tend to have a negative effect on growth, while investment in manufacturing a positive one. Evidence from the service sector is ambiguous.
Key words: Foreign Direct Investment, economic growth, primary sector, manufacturing sector, service sector, spillovers.
JEL Classification: F23, F36, F43
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* Harvard Business School, Morgan 263, Boston, MA 02163. Tel: 617-495-7981. Fax: 617-496-5985. E-mail: lalfaro@hbs.edu. I would like to thank Esteban Clavell for superb research assistance.
1. Introduction
Many policy makers and academics contend that foreign direct investment (FDI) can have important positive effects on a host country’s development effort.1 In addition to the direct capital financing it supplies, FDI can be a source of valuable technology and know-how while fostering linkages with local firms, which can help jumpstart an economy. Based on these arguments, industrialized and developing countries have offered incentives to encourage foreign direct investments in their economies.
Recently, however, the special merits of FDI and particularly the kinds of incentives offered to foreign firms in practice have begun to be questioned. Fueling this debate is that empirical evidence for FDI generating positive spillovers for host countries is ambiguous at both the micro and macro levels.2 In a recent survey of the literature, Hanson (2001) argues that evidence that FDI generates positive spillovers for host countries is weak. In a review of micro data on spillovers from foreign-owned to domestically owned firms, Gorg and Greenwood (2002) conclude that the effects are mostly negative. Lipsey (2002) takes a more favorable view from reviewing the micro literature and argues that there is evidence of positive effects. Surveying the macro empirical research led Lipsey to conclude, however, that there is no consistent relation between the size of inward FDI stocks or flows relative to GDP and growth. He further argues that there is need for more consideration of the different circumstances that obstruct or promote spillovers.3
1 The vast literature on foreign direct investment and multinational corporations has been surveyed many times. For recent surveys see Markusen (1995) and Caves (1996).
2 For example, positive effects of FDI spillovers were reported as part of Caves’ (1974) pioneering work in Australia, and by Kokko (1994) in Mexico. However, Haddad and Harrison’s (1993) findings in Morocco and Aitken and Harrison’s (1999) in Venezuela do not support the positive spillovers hypothesis.



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