Foreign Direct Investment, Host Country Factors and Economic Growth
| Autor | Edna Maeyen Solomon |
| Páginas | 41-70 |
Ensayos Revista de Economía–Volumen XXX, No. 1, mayo 2011, pp. 41-70
Edna Maeyen Solomon
Fecha de recepción: 2 XII 2010 Fecha de aceptación: 29 I 2011
Abstract
This paper analyses how the levels of economic development, human capital,
financial development and the qualities of the economic and political
environments in host countries simultaneously affects the impact of
aggregate inflows of Foreign Direct Investment (FDI) on economic growth.
Multiple interaction terms are employed between inward FDI and each of the
host country factors mentioned above. The System GMM estimator is
applied to a panel of 111 countries from 1981 to 2005. The results show that
the level of economic development, human capital and quality of the
political environment all significantly affect the relationship between inward
FDI and growth.
Keywords: FDI, economic growth, host country factors, System GMM and
panel data.
JEL Classification: F21, F23.
Resumen
Este artículo analiza cómo los niveles de desarrollo económico, capital
humano, desarrollo financiero y la calidad del ambiente económico y
político en los países receptores afectan, simultáneamente, el impacto de los
flujos agregados de la Inversión Extranjera Directa (IED) sobre el
crecimiento económico. En este artículo, se emplean diversos términos de
interacción entre los flujos internos de IED en los países receptores, con cada
uno de los factores que se mencionan. La técnica del Sistema GMM se
aplicará a un panel de 111 países, de 1981 a 2005. Los resultados muestran
que el nivel de desarrollo económico, capital humano y calidad del ambiente
Department of Economics, University of Essex.
Address: Wivenhoe Park, Colchester, Essex, CO4 3SQ, United kingdom.
Email: emsolo@essex.ac.uk
Home phone number: +44(0)7786582068.
Ensayos Revista de Economía
42
político afectan significativamente la relación entre el flujo interno de IED y
el crecimiento.
Palabras Clave: IED, crecimiento económico, factores de países receptores,
Sistema GMM y datos de panel.
Clasificación JEL: F21, F23.
Introduction
Foreign Direct Investment (FDI) refers to a type of international investment
whereby the investor obtains a significant influence in the management of an
entity outside the investor’s home country. FDI has become an important
force in the global economy. According to the 2010 World Investment
Report (UNCTAD, 2010), global inflows of FDI was $1,114 billion in 2009.
Figures from the same report indicated that global inward and outward
stocks of FDI as percentages of GDP were respectively 32.3% and 34.5% in
2009. In addition, there is some evidence that government investment
policies around the world are being modified in order to promote FDI. Table
1 shows the number of investment regulatory regime changes that were
adopted from 1991 to 1998 by a range of 35 to 76 countries. On average,
about 112 regulatory changes took place, of which 105 (i.e., 94%) of these
changes were more favourable to FDI.
Table 1
National FDI-Related Regulatory Changes, 1991-1998
Item 1991 1992 1993 1994 1995 1996 1997 1998
Number of countries that
introduced changes in their
investment regimes
35 43 57 49 64 65 76 60
Number of Regulatory
Regimes 82 79 102 110 112 114 151 145
of which:
More favourable to FDI 80 79 101 108 106 98 135 136
Less favourable to FDI 2 - 1 2 6 16 16 9
Source: World Investment Report (1999).
The sheer magnitude of FDI inflows, together with the fact that several
countries have implemented changes in their regulatory regimes to
encourage FDI leads to the question of what impact inflows of FDI have on
the economic growth in host countries, i.e., the country that FDI flows into.
The objective of this paper is to examine the simultaneous effect of various
Host Country Factors (HCF) on the relationship between inflows of FDI and
economic growth. In particular, I allow for the levels of economic
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