Economic Growth and FDI Inflows: A Stochastic Frontier Analysis

Albert Wijeweera · Renato Andrin Villano · Brian Edward Dollery

95 citations0/0 files storedThe Journal of developing areas

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International Business and FDI Global trade and economics Economic Growth and Productivity

Abstract

Despite plausible theoretical grounds for presuming a positive relationship between foreign direct investment inflows (FDI) and economic growth, existing empirical evidence on this nexus is inconclusive. In an effort to add to the empirical literature, this paper estimates the relationship between FDI and the rate of growth of GDP using a stochastic frontier model and employing panel data covering 45 countries over the period 1997 to 2004. We find that FDI inflows exert a positive impact on economic growth only in the presence of a highly skilled labour; corruption has a negative impact on economic growth; and trade openness increases economic growth by means of efficiency gains.

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References

1989Endogenous Technological Change 1977Formulation and estimation of stochastic frontier production function models 1977Efficiency Estimation from Cobb-Douglas Production Functions with Composed Error 1998How does foreign direct investment affect economic growth?1995A model for technical inefficiency effects in a stochastic frontier production function for panel data 1982On the estimation of technical inefficiency in the stochastic frontier production function model 1997How Taxing is Corruption on International Investors?1973Transcendental Logarithmic Production Frontiers

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