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Does Foreign Direct Investment Generate Economic Growth? A New Empirical Approach Applied to Spain

Economic geography, 2018-08, Vol.94 (4), p.425-456 [Peer Reviewed Journal]

2018 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group, on behalf of Clark University. 2018 ;2018 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group, on behalf of Clark University. This work is licensed under the Creative Commons Attribution – Non-Commercial – No Derivatives License http://creativecommons.org/licenses/by-nc-nd/4.0/ (the “License”). Notwithstanding the ProQuest Terms and Conditions, you may use this content in accordance with the terms of the License. ;ISSN: 0013-0095 ;EISSN: 1944-8287 ;DOI: 10.1080/00130095.2017.1393312

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  • Title:
    Does Foreign Direct Investment Generate Economic Growth? A New Empirical Approach Applied to Spain
  • Author: Bermejo Carbonell, Jorge ; Werner, Richard A.
  • Subjects: Averages ; bank credit creation ; capital flows ; Credit ; Developed countries ; Developing countries ; Economic development ; Economic growth ; Economics ; FDI ; foreign direct investment ; Foreign investment ; GDP ; Gross Domestic Product ; Industrialized nations ; LDCs ; Race ; Scrutiny ; Workforce
  • Is Part Of: Economic geography, 2018-08, Vol.94 (4), p.425-456
  • Description: It is often asserted with confidence that foreign direct investment (FDI) is beneficial for economic growth in the host economy. Empirical evidence has been mixed, and there remain gaps in the literature. The majority of FDI has been directed at developed countries. Single-country studies are needed, due to the heterogeneous relationship between FDI and growth, and because the impact of FDI on growth is said to be largest in open, advanced developed countries with an educated workforce and developed financial markets (although research has focused on developing countries). We fill these gaps with an improved empirical methodology to check whether FDI has enhanced growth in Spain, one of the largest receivers of FDI, whose gross domestic product growth was above average but has escaped scrutiny. During the observation period 1984-2010, FDI rose significantly, and Spain offered ideal conditions for FDI to unfold its hypothesized positive effects on growth. We run a horse race between various potential explanatory variables, including the neglected role of bank credit for the real economy. The results are robust and clear: The favorable Spanish circumstances yield no evidence for FDI to stimulate economic growth. The Spanish EU and euro entry are also found to have had no positive effect on growth. The findings call for a fundamental rethinking of methodology in economics.
  • Publisher: Oxford: Routledge
  • Language: English
  • Identifier: ISSN: 0013-0095
    EISSN: 1944-8287
    DOI: 10.1080/00130095.2017.1393312
  • Source: Taylor & Francis Open Access
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