D ifferential Growth Impact of FDI

Shan (2002) examined the growth impact of FDI using the vector autoregressive (VAR) method and quarterly data from China over 1986-1998; the study reported the evidence of two-way causality between the two. [...] Generally, the higher the technological gap between the origin and recipient countries, the higher are the benefits to the host country. [...] Additionally, the coefficient of the interaction term for human capital (FDI*HUM) is positive and significant in specification 5, which indicates that the growth effects of FDI depend on the state of human capital development. [...] The paper also studied the differential impact of FDI inflows for LICs, LMICs, and emerging countries in acknowledgment of the possibility that the implications of FDI inflows may not be the same across the spectrum of developing countries. [...] In addition, the study also sought to understand the role of the level of human capital, degree of trade openness, institutional setup, state of infrastructure, financial development, and stock of foreign debt in complementing the channel effect of FDI.