This work finds out that FDI affects negativelly economic growth. This outcome is grounded on a demand-sided growth model which includes the shrinkage effect of foreing firms surpluses repatriation. Although in one first stage FDI contributes to alleviate financial shortage, in the long run it discourages investment and growth through a diminished demand. Thus, the model captures the keynesian stress on demand stimulus, as well as the neoclassic emphasis on the financial contribution of FDI. A simple variable, the proportion of the economy under control of foreign firms, validates this hypotheses empirically for the case of Argentina, due to the concept of causality in the sense of Granger. The common praxis to test FDI flows instead of stocks in econometric analysis, maybe its the reason why it's so difficult to find a significative empirical relation between growth and FDI. In addition, the result shows that FDI displaces domestic investment, suggesting that this is one of the linkages of the negative impact.
|Publication status||Published - 1 Apr 2007|