Thursday, 25 March 2010: 18:05
The mixed findings obtained by the literature about the FDI-growth nexus have stressed the debate about the expected benefits of these capital inflows. Current empirical research suggests that the ability of countries to exploit FDI efficiently seems to be related to a set of absorptive capacities in host economies. This would explain the conflicting evidence about this subject. As has been argued by Lipsey and Sjöholm, (2005), heterogeneity in host country factors is the most likely source of the inconclusiveness of empirical research. This paper contributes to this debate by trying to shed some light into the local conditions under which a positive impact of FDI on growth is most likely to arise. We estimate dynamic panel data regressions for a group of emerging countries from Latin American and Asia during the period 1976-2005, allowing for different development levels. The use of the GMM estimator overcomes the limitations of previous dynamic panel data methods in the estimation of growth models. Preliminary results reveal the importance of considering, both economic reforms as well as institutional quality factors in evaluating the economic impact of foreign inflows. The results obtained are robust to several sensitivity tests relating to different specification models, split samples and omitted variables.