Inappropriate pooling of wealthy and poor countries in empirical FDI studies

Document Type

Contribution to Book



Format of Original

23 cm, 24 p.

Publication Date



Peterson Institute for International Economics

Source Publication

Does Foreign Direct Investment Promote Development?

Source ISSN



This paper examines the question of whether less-developed countries' (LDCs') experiences with foreign direct investment (FDI) systematically different from those of developed countries (DCs). We do this by examining three types of empirical FDI studies that typically do not distinguish between LDCs and DCs in their analysis. First, we find that the underlying factors that determine the location of FDI activity across countries vary systematically across LDCs and DCs in a way that is not captured by current empirical models of FDI. Second, the effect of FDI on economic growth is one that is only supported for LDCs in the aggregate data, not DCs. Third, the evidence suggests that FDI is much less likely to crowd out (more likely to crowd in) domestic investment for LDCs than DCs.


"Inappropriate pooling of wealthy and poor countries in empirical FDI studies," in Does Foreign Direct Investment Promote Development?. Eds. Bruce A. Blonigen and Miao Wang. Peterson Institute for International Economics, 2005, pp 221-244. Permalink: http://www.petersoninstitute.org/publications/chapters_preview/3810/09iie3810.pdf