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Foreign Direct Investment and Productivity: A Cross-Country, Multisector Analysis

Author

Listed:
  • Rodolphe Desbordes

    (Professor of Economics, SKEMA Business School-Université Côte d'Azur, Paris. Author email: rodolphe.desbordes@skema.edu)

  • Loe Franssen

    (Globalization Researcher, Statistics Netherlands. Author email: loefranssen@gmail.com)

Abstract

This paper adopts a cross-country, multisector approach to investigate the intra- and inter-industry effects of foreign direct investment (FDI) on the productivity of 15 emerging market economies in 2000 and 2008. Our main finding is that intra-industry FDI has a large positive effect on total and “exported” labor productivity. The effects of FDI on total factor productivity are much more elusive, both in statistical and economic terms. This result suggests that foreign firms raise the performance of their host economies through a direct compositional effect. Foreign firms tend to be larger and more input intensive and have greater access to foreign markets than domestic firms. Their greater prevalence mechanically increases average labor productivity and export performance.

Suggested Citation

  • Rodolphe Desbordes & Loe Franssen, 2019. "Foreign Direct Investment and Productivity: A Cross-Country, Multisector Analysis," Asian Development Review, MIT Press, vol. 36(1), pages 54-79, March.
    • Handle: RePEc:tpr:adbadr:v:36:y:2019:i:1:p:54-79
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    File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/adev_a_00123
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    Cited by:

    1. Fadzli Adam, 2020. "Foreign Capital and Domestic Productivity in Developing Countries: An Empirical Analysis," Asian Development Policy Review, Asian Economic and Social Society, vol. 8(4), pages 288-297, December.
    2. Xia Liu & Hanwen Sun & Wei Liu & Jiaqi Fang, 2023. "The Impact of Reverse Cross-Border Mergers and Acquisitions in Emerging Countries on the Division Position in the Global Value Chain: A Systematic Framework of the Third Country Effect," Sustainability, MDPI, vol. 15(6), pages 1-21, March.
    3. Misztal Piotr, 2020. "Foreign Direct Investment, Production Factors Productivity and Income Inequalities in Selected CEE Countries," TalTech Journal of European Studies, Sciendo, vol. 10(1), pages 146-172, June.
    4. Hieu Thanh Nguyen & Hiep Ngoc Luu & Ngoc Ha Do, 2021. "The dynamic relationship between greenfield investments, cross-border M&As, domestic investment and economic growth in Vietnam," Economic Change and Restructuring, Springer, vol. 54(4), pages 1065-1089, November.
    5. Feng, Ya & Wen, Junqi, 2023. "Foreign direct investment and employee income share: Firm-level evidence," Finance Research Letters, Elsevier, vol. 55(PA).

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    More about this item

    Keywords

    foreign direct investment; productivity; sector level; services;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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