Does Foreign Direct Investment Generate Economic Growth? A New Empirical Approach Applied to Spain

Bibliographic Data

ID4043695
AuthorsJorge Bermejo Carbonell (ICADE Business SchoolComillas Pontifical University, Madrid 28008Spain), Richard A Werner (Centre for Banking, Finance and Sustainable DevelopmentUniversity of Southampton, Southampton Business School, Southampton SO17 1BJUK)
Year2018
Volume94
Issue4
Pages425-456
Publication date2018-08-08
Peer ReviewedYes
Open AccessNo
TypeARTICLE
VenueEconomic Geography (JOURNAL)
Journal identifiersISSN: 0013-0095 • E-ISSN: 1944-8287
PublisherInforma UK Limited (PUBLISHER • GB)
DOI10.1080/00130095.2017.1393312
OpenAlexW2789450125
LanguageEN
Citations received23
References cited96

It is often asserted with confidence that foreign direct investment (FDI) is beneficial for economic growth in the host economy. Empirical evidence has been mixed, and there remain gaps in the literature. The majority of FDI has been directed at developed countries. Single-country studies are needed, due to the heterogeneous relationship between FDI and growth, and because the impact of FDI on growth is said to be largest in open, advanced developed countries with an educated workforce and developed financial markets (although research has focused on developing countries). We fill these gaps with an improved empirical methodology to check whether FDI has enhanced growth in Spain, one of the largest receivers of FDI, whose gross domestic product growth was above average but has escaped scrutiny. During the observation period 1984–2010, FDI rose significantly, and Spain offered ideal conditions for FDI to unfold its hypothesized positive effects on growth. We run a horse race between various potential explanatory variables, including the neglected role of bank credit for the real economy. The results are robust and clear: The favorable Spanish circumstances yield no evidence for FDI to stimulate economic growth. The Spanish EU and euro entry are also found to have had no positive effect on growth. The findings call for a fundamental rethinking of methodology in economics

Economics · Empirical research · Foreign direct investment · International economics · International trade · Macroeconomics · Monetary economics · Political science · Scrutiny · Economic Policies and Impacts · Global trade and economics · International Business and FDI

Tools

Open DOISci-HubOpen Access