Inappropriate Pooling of Wealthy and Poor Countries in Empirical FDI Studies, Issue 10378
National Bureau of Economic Research, 2004 - Economic development - 29 pages
This paper examines the question of whether less-developed countries' (LDCs') experiences with foreign direct investment (FDI) systematically different from those of developed countries (DCs). We do this by examining three types of empirical FDI studies that typically do not distinguish between LDCs and DCs in their analysis. First, we find that the underlying factors that determine the location of FDI activity across countries vary systematically across LDCs and DCs in a way that is not captured by current empirical models of FDI. Second, the effect of FDI on economic growth is one that is only supported for LDCs in the aggregate data, not DCs. Third, the evidence suggests that FDI is much less likely to crowd out (more likely to crowd in) domestic investment for LDCs than DCs.
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American dummy analysis Balasubramanyam Blonigen and Davies Borensztein capital CMM specification coefficient estimates column country-level data on FDI David Card DCs and LDCs decade developed countries domestic investment effect of FDI empirical FDI studies empirical specification European Union evidence examining Expected Sign F_COSTj F-test FDI activity FDI flows FDI on growth FDI patterns foreign foreign direct investment horizontal MNE activity horizontal motivations host country impact inbound FDI Inflows In developing inside the back instructions inside issue Knowledge-Capital Model LDC countries LDCs and DCs log-linear model Markusen Miao Wang motivations for FDI NBER NBER Working Paper negative coefficient observations omitted variable bias p-value panel data techniques parent country Partial Subscription percent pooling LDCs positive coefficient random effects estimates regressions rights 1 best sample SKDIFF skill difference statistically significant suggests that FDI SUMGDP Terry Long trade costs U.S. FDI U.S. outbound FDI versus vertical motivations world FDI inflows