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FDI and economic growth: the role of local financial markets |
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| Authors: | Laura Alfaro Sebnem Kalemli-Ozcan Selin Sayek |
| Institution: | a Harvard Business School, 263 Morgan Hall, Boston, MA 02163, USA b Department of Economics, North Carolina State University, Raleigh, NC 27695-8110, USA c Department of Economics, University of Houston, Houston, TX 77204-5882, USA d International Monetary Fund (IMF), 700 19th Street, NW, Washington, DC 20341, USA |
| Abstract: | In this paper, we examine the various links among foreign direct investment (FDI), financial markets, and economic growth. We explore whether countries with better financial systems can exploit FDI more efficiently. Empirical analysis, using cross-country data between 1975 and 1995, shows that FDI alone plays an ambiguous role in contributing to economic growth. However, countries with well-developed financial markets gain significantly from FDI. The results are robust to different measures of financial market development, the inclusion of other determinants of economic growth, and consideration of endogeneity. |
| Keywords: | Foreign direct investment Capital markets Credit markets Economic growth Spillovers |
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