Document Type

Article

Publication Date

3-2009

Source Publication

Applied Economics

Source ISSN

0003-6846

Abstract

Previous empirical studies on inward foreign direct investment (FDI) and economic growth generate mixed results. This article suggests that the ambiguous results might be caused by the use of total FDI. We study the heterogeneous effects of different sector-level FDI inflows on host country’s economic growth. Data from 12 Asian economies over the period of 1987 to 1997 are employed. Strong evidence shows that FDI in manufacturing sector has a significant and positive effect on economic growth in the host economies. FDI inflows in nonmanufacturing sectors do not play a significant role in enhancing economic growth. Furthermore, without the decomposition of total FDI inflows, the effect of manufacturing FDI on host country’s economic growth is understated by at least 48%.

Comments

Accepted version. Applied Economics, Vol. 41, No. 8 (March 2009): 991-1002. DOI. © Taylor & Francis 2009. Used with permission.