Harnessing FDI for Economic Growth

Harnessing FDI
for Economic Growth
Beata Javorcik
University of Oxford
What are the essential ingredients for
fast and sustained economic growth?
Openness
Import
knowledge
Exploit global
demand
Leadership and
governance
Credible commitment
to growth
Credible commitment
to inclusion
Capable administration
Market
allocation
Prices guide
resources
Long-term
focus
High savings
Macroeconomic
stability
Modest inflation
Sustainable
public finances
Multinational firms (MNCs) are creators
of knowledge
MNCs are responsible for most of the world’s R&D
700 multinational corporations accounted for 46% of
the world’s total R&D expenditure and 69% of the
world’s business R&D in 2002 (UNCTAD 2005)
MNCs’ R&D budgets may exceed R&D
spending of countries (2002, $bn)
Knowledge brought by MNCs boosts
the performance of FDI recipients
Total factor productivity (in logs)
Pre-acquisition
Year
Acquisition
year
One year later
Two years later
FDI recipients
0.864
1.079
1.142
1.215
Control group
0.867
0.976
1.022
1.083
0.106***
(0.034)
0.122***
(0.045)
0.135***
(0.051)
Difference
Knowledge brought by MNCs boosts
the performance of FDI recipients
Total factor productivity (in logs)
Pre-acquisition
Year
Acquisition
year
One year later
Two years later
FDI recipients
0.864
1.079
1.142
1.215
Control group
0.867
0.976
1.022
1.083
0.106***
(0.034)
0.122***
(0.045)
0.135***
(0.051)
Difference
Knowledge brought by MNCs boosts
the performance of FDI recipients
Total factor productivity (in logs)
Pre-acquisition
Year
Acquisition
year
One year later
Two years later
FDI recipients
0.864
1.079
1.142
1.215
Control group
0.867
0.976
1.022
1.083
0.106***
(0.034)
0.122***
(0.045)
0.135***
(0.051)
Difference
Foreign ownership leads to rapid changes
(d) Employment
(c) Output
6.00
11.40
11.20
11.00
10.80
10.60
10.40
10.20
10.00
5.80
5.60
5.40
t-1
t0
t+1
t-1
t+2
(e) Average wage
9.00
8.80
8.60
8.40
8.20
8.00
7.80
7.60
t-1
t0
t+1
t+2
t0
t+1
t+2
Foreign ownership facilitates
integration into global markets
(h) Export share
(i) Import input share
45
35
40
30
35
30
25
25
20
20
15
15
t-1
t0
t+1
t+2
t-1
t0
t+1
t+2
Knowledge brought by MNCs spills
over to local suppliers
Local
suppliers
Higher productivity
Moving up the value chain
Increased complexity of products
MNCs
Conclusion
By serving as a channel of
knowledge transfer, FDI inflows
can stimulate economic growth
and innovation in host countries
Thank you