Revisiting the FDI impact on GDP growth in errors-in-variables models: a panel data GMM analysis

Erik Biørn, Xuehui Han

Photo: Empirical Economics, Springer

Published in:

Empirical Economics, Volume 53, Number 4, 1379-1398, December 2017

DOI: 10.1007/s00181-016-1203-4


GMMestimation of autoregressive equations in error-ridden variables with error memory is considered in exploring the impact of foreign direct investment (FDI) on GDP from country panel data, contrasting, inter alia, the manufacturing and the service sector. To evaluate finite-sample properties of the methods selected, results from Monte Carlo simulations are reported. Contrary to the previous findings, no negative spillover effects from the service FDI on manufacturing GDP growth are obtained; the estimates indicate a positive effect, while (surprisingly) the effect of service FDI on the serviceGDPgrowth comes out as insignificant. Overall conclusions are: (1) Aggregate FDI has a positive, but insignificant effect on aggregate GDP based on the full country panel; (2) for the developing Asian countries, FDI significantly improves GDP growth; and (3) manufacturing FDI impacts both manufacturing and service GDP growth positively.

Published Nov. 23, 2017 3:54 PM - Last modified Nov. 27, 2017 6:40 AM