The FDI-Growth Nexus in Latin America: The Role of Source Countries and Local Conditions

CentER Discussion Paper Series No. 2008-61

36 Pages Posted: 3 Jul 2008

See all articles by Patricia Prufer

Patricia Prufer

CentERdata; Tilburg University

Gabriele Tondl

Vienna University of Economics - Institute for European Affairs/Department of Economics

Date Written: June 25, 2008

Abstract

Foreign Direct Investment (FDI) has surged in Latin America (LA) since the mid 1990s. European and North American FDI is of capital importance. We investigate the FDI-growth nexus in LA allowing for different source countries, regional heterogeneity, interaction terms with FDI, and more than 20 growth determinants. We use Bayesian Model Averaging to address model uncertainty and to select the best models and most robust parameters. The principal finding is that a positive FDI-growth nexus in LA requires a functioning legal framework and macroeconomic stability. We also find that European FDI is only indirectly correlated with productivity growth, whereas North American FDI is more robust and thus directly correlated with productivity growth.

Keywords: FDI-growth nexus, model uncertainty, Bayesian Model Averaging, Latin America

JEL Classification: C52, F21, F43, O54

Suggested Citation

Prufer, Patricia and Tondl, Gabriele, The FDI-Growth Nexus in Latin America: The Role of Source Countries and Local Conditions (June 25, 2008). CentER Discussion Paper Series No. 2008-61, Available at SSRN: https://ssrn.com/abstract=1154914 or http://dx.doi.org/10.2139/ssrn.1154914

Patricia Prufer (Contact Author)

CentERdata ( email )

PO Box 90153
Tilburg, NL 5000 LE
Netherlands

Tilburg University ( email )

Department of Economics
CentER
Tilburg, 5032 RE
Netherlands

HOME PAGE: http://center.uvt.nl/phd_stud/prufer/

Gabriele Tondl

Vienna University of Economics - Institute for European Affairs/Department of Economics ( email )

Augasse 2-6
A-1090 Vienna
Austria
+43 1 31336 5566 (Phone)
+43 1 31336 758 (Fax)

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