SECTORAL FDI IMPACT ON EMERGING MARKETS

Abstract

Although it may seem natural to argue that Foreign Direct Investment (FDI) is positive for host economies and their economic growth, earlier research gives and ambiguous picture in this matter of interest. This paper uses a reconciliation of three important studies (Alfaro 2003, Bloningen and Wang 2005, and Carkovic and Levine 2005). By disaggregating the FDI into sectors and pool against emerging markets while using a system GMM estimator; this paper avoids common mistakes in earlier studies, and therefore provides a new generalizing study of foreign direct investments´ effect on growth. Our results indicate that FDI in each of the three sectors has an insignificant effect on host country growth. Plausible reasons behind our results and additional factors that might have altered the results are briefly discussed.