Foreign Direct Investment and Economic Growth: The Growth Accounting Perspective

Miao Wang, Marquette University
M. C. Sunny Wong, University of San Francisco

Economic Inquiry, Volume 47, No. 4 (October 2009), DOI: 10.1111/j.1465-7295.2008.00133.x.


A positive relationship between FDI and economic growth under two economic conditions has been estimated: a sufficient level of human capital and well-developed financial markets, respectively. However, these two conditions can be fundamentally different catalysts for FDI to promote economic growth in the perspective of growth accounting. Using data from 69 countries over 1970–1989, we find that FDI promotes productivity growth only when the host country reaches a threshold level of human capital; and FDI promotes capital growth only when a certain level of financial development is achieved.