Foreign direct investment and growth under economic integration |
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Authors: | Ting Gao |
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Institution: | Department of Economics, University of Missouri, Columbia, MO 65211, USA City University of Hong Kong, Hong Kong, China |
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Abstract: | This paper studies foreign direct investment (FDI) and economic growth in a two-country endogenous growth model. Starting with a core-periphery steady state in the world, the model shows that economic integration gives rise to FDI, leads to an expansion of R&D activity in the industrial core, and increases the world growth rate. In that process, the peripheral country enjoys a rise in the level of living standards. The model suggests that the often-observed positive correlation between inward FDI and economic growth does not necessarily imply any causal relationship—both of them respond endogenously to economic integration. |
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Keywords: | F21 F43 O31 R12 |
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