Does technology shape the relationship between FDI and growth? A panel data analysis

Figures & data

Figure 1. FDI inflows, global and by group of economies 1990–2020.

Source: Data from UNCTAD, World Investment Report 2021

Table 1. FDI decomposition by sector and by technology.

Secondary	High Tech	Aircraft and Spacecraft
		Pharmaceuticals
		Office, accounting and computing machinery
		Radio, TV and communication equipment
		Medical, precision and optical instruments
	Medium High Tech	Electrical machinery and apparatus, n.e.c.
		Motor vehicles, trailers and semi-trailers
		Chemicals excluding pharmaceuticals
		Railroad equipment and transport equipment, n.e.c.
		Machinery and equipment, n.e.c.
	Medium Low Tech	Building and repairing of ships and boats
		Rubber and plastics products
		Coke, refined petroleum products and nuclear fuel
		Other non-metallic mineral products
		Basic metals and fabricated metal products
	Low Tech	Manufacturing, n.e.c.; Recycling
		Wood, pulp, paper, paper products, printing and publishing
		Food products, beverages and tobacco
		Textiles, textile products, leather and footwear
Services	High Tech	Post and Telecommunications
		Financial Intermediation
		Renting and Business Activities
		Education, Health and Social Work
	Low Tech	Services n.e.c.

Table 2. FDI variables with definitions.

Variable Name	What it measures	Variable Name	What it measures	Variable Name	What it measures
FDI	Total FDI/GDP ratio	FDISEC	Secondary FDI/GDP ratio	HTFDISec	High Tech FDI Sec/GDP Ratio
				MHTFDISec	Medium High Tech FDI Sec/GDP Ratio
				MLTFDISec	Medium Low Tech FDI Sec/GDP Ratio
				LTFDISec	Low Tech FDI Sec/GDP Ratio
		FDISERV	Services FDI/GDP ratio	HTFDIServ	High Tech FDI Services/GDP ratio
				LTFDIServ	Low Tech FDI Services/GDP ratio
		FDIPRIM	Primary FDI/GDP ratio

Table 3. Dynamic system GMM non-zero countries.

	(1)	(2)	(3)	(4)
${\mathrm{g}}_{\mathrm{it}-1}$	0.265***	0.243***	0.232***	0.242***
	(5.12)	(4.34)	(4.12)	(4.76)
FDI	0.0511
	(1.58)
FDISEC		0.297***
		(2.86)
FDISERV		0.000329
		(0.01)
FDIPRIM		−0.0473*
		(−1.87)
HTFDISec			1.680***	1.450***
			(3.13)	(2.96)
MHTFDISec			−0.0731	−0.0492
			(−0.33)	(−0.23)
MLTFDISec			−0.0600	0.00230
			(−0.14)	(0.01)
LTFDISec			1.155***	1.197***
			(4.22)	(3.70)
HTFDIServ			0.0602***
			(3.18)
LTFDIServ			−0.0574
			(−0.68)
d_credit	−0.0138***	−0.0146***	−0.0195***	−0.0226***
	(−3.33)	(−3.19)	(−4.77)	(−4.86)
inflation	−0.00397	−0.0258	−0.0276	−0.151**
	(−0.11)	(−0.67)	(−0.75)	(−2.39)
pop_growth	−1.088***	−1.389***	−1.578***	−1.536***
	(−4.25)	(−6.72)	(−7.40)	(−6.62)
trade	0.00816*	0.00470	−0.00297	−0.00497
	(2.02)	(0.89)	(−0.72)	(−1.13)
gov_exp	−0.252**	−0.217***	−0.226***	−0.248***
	(−3.57)	(−3.71)	(−4.25)	(−4.65)
gfcf	0.0783	0.168***	0.181***	0.167***
	(1.18)	(3.97)	(4.52)	(3.79)
hc	0.105	0.0507	0.552	0.170
	(0.21)	(0.09)	(1.02)	(0.28)
_cons	5.103**	3.134	2.363	5.090**
	(2.11)	(1.56)	(1.31)	(2.15)
N	618	544	523	531
Instruments	14	16	20	18
AR(1) p-value	0.000	0.000	0.000	0.000
AR(2) p-value	0.008	0.108	0.150	0.126
AR(3) p-value	0.468	0.215	0.384	0.258
Sargan	0.762	0.767	0.456	0.322
Hansen	0.581	0.597	0.121	0.143

Sargan and Hansen p-values are reported in the table. Both Sargan and Hansen test the null that instruments as a group are exogenous. In all our models, we fail to reject the null hypotheses, thereby indicating that the instruments are valid.

Notes: 1. Sargan and Hansen p-values are reported in the table. Both Sargan and Hansen test the null that instruments as a group are exogenous. In all our models, we fail to reject the null hypotheses, thereby indicating that the instruments are valid.2. The test for serial correlation in the residual shows presence of first order serial correlation (AR1) while absence of second order serial correlation (AR2) in all models except in the model in equation 1. In this model, serial correlation of order 2 is found. Consequently, we have used higher order lags as instruments in this model, as suggested in Arellano and Bond (1991).

Table 4. Total FDI and growth, comparative view.

	GMM (non zero)	FE (non zero)	GMM (full sample)	Fixed Effects (full sample)
FDI (Total)/GDP	0.0511	0.0321*	−0.00489**	−0.00223

t statistics in parentheses; * p < 0.1, ** p < 0.05, *** p < 0.01.

Table 5. FDI by sectors and growth, comparative view.

	GMM (non zero)	FE (non zero)	GMM (full sample)	Fixed Effects (full sample)
FDI (Sec)/GDP	0.297***	0.220*	0.0591	0.0961***
FDI (Serv)/GDP	0.000329	−0.0487**	0.00109	0.00623
FDI (Prim)/GDP	−0.0473*	−0.0971***	−0.0246*	−0.0103

t statistics in parentheses; * p < 0.1, ** p < 0.05, *** p < 0.01.

Table 6. FDI by technology and growth, comparative view.

	GMM (non zero)	FE (non zero)	GMM (full sample)	Fixed Effects (full sample)
HT FDI (Sec)/GDP	1.680***	2.042***	1.193**	1.694***
MHT FDI (Sec)/GDP	−0.0731	−0.229	0.0115	−0.193
MLT FDI (Sec)/GDP	−0.0600	−0.114	0.0283	−0.162
LT FDI (Sec)/GDP	1.155***	0.607**	1.013***	0.650**
HT FDI (Serv)/GDP	0.0602***	0.0594***	0.0145	0.0101
LT FDI (Serv)/GDP	−0.0574	−0.0389	−0.0223***	−0.0208**

t statistics in parentheses; * p < 0.1, ** p < 0.05, *** p < 0.01.

Table A1. List of countries.

1. Argentina	17. France^(N, H)	33. Pakistan
2. Armenia^(N)	18. Germany^(N, H)	34. Paraguay
3. Australia^(H)	19. Greece^(N, H)	35. Peru
4. Austria^(N, H)	20. Hong Kong^(H)	36. Poland^(N, H)
5. Bolivia	21. Hungary^(N, H)	37. Slovak Republic^(N, H)
6. Brazil^(N)	22. India^(N)	38. Slovenia^(H)
7. Canada^(H)	23. Indonesia^(N)	39. Spain^(N, H)
8. Costa Rica	24. Ireland^(N, H)	40. Sweden^(H)
9. Croatia^(N, H)	25. Italy^(N, H)	41. Switzerland^(N, H)
10. Cyprus^(H)	26. Japan^(N, H)	42. Thailand
11. Czech Republic^(H)	27. Korea^(N)	43. Trinidad and Tobago^(H)
12. Denmark^(N, H)	28. Latvia^(H)	44. Tunisia
13. Dominican Republic	29. Lithuania^(N, H)	45. Turkey^(N)
14. El Salvador	30. Mexico^(N)	46. United Kingdom^(N, H)
15. Estonia^(H)	31. Netherlands^(N,H)	47. United States^(N, H)
16. Finland^(N, H)	32. Norway^(N, H)	48. Uruguay^(N, H)

This table represents the full sample of countries. The superscript ‘N’ stands for the non-zero subsample, while ‘H’ stands for high income.

Table B1. Summary statistics.

	Obs	Mean	Std. Dev.	Min	Max
$g_{\mathit{it}}$	1,442	2.337	3.672	−40.74	24.667
FDI	1,192	6.637	31.651	−29.762	349.476
FDISEC	1,149	0.657	3.614	−12.658	48.865
FDISERV	1,356	4.791	24.513	−52.856	254.17
FDIPRIM	1,063	1.142	8.911	−68.402	101.179
HTFDISec	1,103	0.065	0.449	−2.178	11.254
MHTFDISec	1,117	0.1268	0.547	−7.452	6.693
MLTFDISec	1,152	0.1586	1.719	−2.351	40.802
LTFDISec	1,164	0.1139	0.6018	−2.764	10.712
HTFDIServ	1,355	2.389	13.37	−53.596	246.055
LTFDIServ	1,375	2.370	14.201	−10.277	171.99
d_credit	1,401	72.864	51.307	0.1858	253.57
inflation	1,442	27.137	259.66	−27.63	6261.24
pop_growth	1,487	0.697	0.863	−5.814	4.439
trade	1,447	80.648	52.786	13.75	442.62
gov_exp.	1,445	16.480	4.838	2.976	27.935
gfcf	1,445	22.226	5.056	10.524	44.345
hc	1,384	2.867	0.552	1.351	3.794

Table B2. Correlation table (full correlation data – inclusive of control variables).

	${\mathrm{g}}_{\mathrm{it}}$	FDI	FDI SEC	FDI SERV	FDI PRIM	HT FDISec	MHT FDISec	MLTFDISec	LT FDISec	HT FDIServ	LT FDIServ	d_credit	inflation	pop_growth	trade	gov_exp	gfcf	hc
${\mathrm{g}}_{\mathrm{it}}$	1
FDI	−0.04	1
FDISEC	0.03	0.21	1
FDI SERV	−0.04	0.93	0.11	1
FDI PRIM	−0.03	0.83	0.04	0.68	1
HTFDI Sec	0.09	−0.02	0.81	−0.10	0.14	1
MHT FDISec	−0.01	0.02	0.57	−0.01	0.04	0.16	1
MLT FDISec	0.03	0.06	0.94	0.00	−0.03	0.10	0.05	1
LT FDISec	0.02	0.03	0.77	−0.05	0.06	0.13	0.18	0.81	1
HTFDIServ	−0.03	0.73	0.12	0.88	0.46	−0.15	0.00	−0.01	−0.09	1
LT FDIServ	−0.03	0.92	0.10	0.90	0.74	−0.04	−0.02	0.00	−0.01	0.57	1
d_credit	−0.22	−0.05	−0.01	0.00	−0.07	0.03	0.06	−0.02	0.01	0.07	−0.06	1
inflation	−0.13	−0.01	−0.01	−0.02	0.00	−0.01	−0.01	0.00	−0.01	−0.02	−0.01	−0.07	1
pop_growth	−0.10	−0.02	0.04	−0.05	0.04	0.07	−0.01	0.04	0.07	−0.05	−0.03	−0.05	0.03	1
Trade	0.10	0.01	0.02	0.03	0.01	0.10	0.01	0.00	0.01	0.04	0.01	0.22	−0.07	−0.21	1
gov_exp.	−0.19	−0.14	0.01	−0.10	−0.15	−0.02	0.03	0.00	0.06	−0.05	−0.13	0.25	−0.10	−0.46	0.00	1
gfcf	0.25	−0.17	−0.06	−0.17	−0.13	0.03	−0.03	−0.01	−0.03	−0.15	−0.16	0.18	−0.07	−0.06	0.13	−0.01	1
hc	−0.07	−0.19	−0.01	−0.14	−0.20	0.04	0.07	0.01	0.00	−0.07	−0.16	0.49	−0.10	−0.50	0.23	0.55	0.16	1

Table B3. Variance inflation factor.

Variable	VIF (1)	VIF (2)	VIF (3)	VIF (4)
${\mathrm{g}}_{\mathrm{it}-1}$	1.44	1.44	1.43	1.40
FDI	1.12
FDISEC		1.03
FDISERV		2.38
FDIPRIM		2.18
HTFDISec			1.17	1.16
MHTFDISec			1.15	1.15
MLTFDISec			1.04	1.04
LTFDISec			1.23	1.23
HTFDIServ			1.53
LTFDIServ			1.58
d_credit	1.56	1.59	1.62	1.56
İnflation	1.04	1.05	1.05	1.04
pop_growth	1.65	1.78	1.88	1.78
trade	1.15	1.17	1.18	1.18
gov_exp	1.69	1.72	1.79	1.79
gfcf	1.33	1.34	1.35	1.31
hc	2.19	2.28	2.26	2.23
Mean VIF	1.46	1.63	1.45	1.41

Table B4. Panel unit root test results.

Variable	Fisher	Fisher with trend	Pesaran	Pesaran with trend
${\mathrm{g}}_{\mathrm{it}-1}$	613.651***	482.569***	−13.271***	−10.230***
FDI	299.405***	322.218***	−8.729***	−5.897***
FDISEC	551.514***	526.926***	−9.243***	−6.770***
FDISERV	354.564***	371.125***	−9.487***	−8.387***
FDIPRIM	419.013***	314.774***	−10.616***	−7.262***
HTFDISec	336.895***	300.227***	3.481	3.528
MHTFDISec	396.772***	342.435***	−1.437*	−0.586
MLTFDISec	721.743***	478.738***	−8.894***	−7.058***
LTFDISec	649.283***	538.801***	−8.214***	−6.142***
HTFDIServ	483.568***	427.311***	−10.875***	−8.591***
LTFDIServ	570.807***	557.525***	−11.674***	−12.665***
d_credit	79.171	73.613	1.585	4.808
İnflation	547.238***	468.688***	−17.125***	−14.635***
pop_growth	277.567***	419.163***	−6.974***	−7.781***
trade	64.654	123.078**	−1.798**	0.714
gov_exp	174.078***	131.018***	−2.568***	1.591
gfcf	222.984***	227.223***	−1.902**	−0.717
hc	677.131***	145.507***	9.551	16.648

For first generation tests, we have employed the Fisher test as developed by Maddala and Wu (1999); while for the second generation tests, Pesaran (2007) panel unit root test has been used. Null for both tests is that the series have unit root.

Table B5. Fixed effects in non-zero countries.

	(1)	(2)	(3)	(4)
${\mathrm{g}}_{\mathrm{it}-1}$	0.142***	0.110	0.0818	0.114
	(2.62)	(1.62)	(1.27)	(1.61)
FDI	0.0321*
	(1.91)
FDISEC		0.220*
		(1.93)
FDISERV		−0.0487**
		(−2.32)
FDIPRIM		−0.0971***
		(−4.27)
HTFDISec			2.042***	1.698***
			(4.49)	(4.74)
MHTFDISec			−0.229	−0.214
			(−1.35)	(−1.48)
MLTFDISec			−0.114	−0.142
			(−0.32)	(−0.33)
LTFDISec			0.607**	0.566**
			(2.40)	(2.13)
HTFDIServ			0.0594***
			(4.18)
LTFDIServ			−0.0389
			(−0.42)
d_credit	−0.0236**	−0.0292***	−0.0298***	−0.0282***
	(−2.56)	(−3.31)	(−3.47)	(−3.06)
inflation	0.00803	−0.00949	−0.0117	−0.119
	(0.18)	(−0.20)	(−0.26)	(−1.60)
pop_growth	−0.924***	−1.656***	−1.686***	−1.751***
	(−3.75)	(−8.06)	(−6.73)	(−5.65)
trade	0.0102	0.0256	0.0247	0.0147
	(0.67)	(1.48)	(1.55)	(0.91)
gov_exp	−0.624***	−0.461***	−0.472***	−0.494***
	(−3.35)	(−3.54)	(−3.54)	(−3.58)
gfcf	0.0780	0.285***	0.277***	0.243***
	(0.88)	(4.81)	(5.11)	(3.74)
hc	0.0801	−0.328	−0.938	−1.638
	(0.06)	(−0.24)	(−0.80)	(−1.38)
_cons	12.62**	6.221	8.367**	12.66**
	(2.41)	(1.52)	(2.19)	(2.64)
N	618	544	523	531

t statistics in parentheses¸* p < 0.1, ** p < 0.05, *** p < 0.01.

Table B6. Dynamic system GMM full sample.

	(1)	(2)	(3)	(4)
${\mathrm{g}}_{\mathrm{it}-1}$	0.277***	0.255***	0.239***	0.242***
	(5.93)	(5.21)	(5.12)	(5.63)
FDI	−0.00489**
	(−2.46)
FDISEC		0.0591
		(1.07)
FDISERV		0.00109
		(0.23)
FDIPRIM		−0.0246*
		(−1.80)
HTFDISec			1.193**	1.131**
			(2.41)	(2.26)
MHTFDISec			0.0115	0.0270
			(0.05)	(0.11)
MLTFDISec			0.0283	0.0141
			(0.09)	(0.05)
LTFDISec			1.013***	0.973***
			(3.49)	(3.16)
HTFDIServ			0.0145
			(1.68)
LTFDIServ			−0.0223***
			(−4.35)
d_credit	−0.0137***	−0.0134***	−0.0155***	−0.0153***
	(−4.88)	(−4.42)	(−4.84)	(−4.71)
Inflation	−0.000830***	−0.000806***	−0.000874***	−0.000904***
	(−8.26)	(−7.32)	(−9.33)	(−9.44)
pop_growth	−0.998***	−1.171***	−1.392***	−1.283***
	(−5.79)	(−6.19)	(−7.19)	(−6.37)
Trade	0.00531**	0.00447*	0.00283	0.00284
	(2.03)	(1.93)	(1.63)	(1.49)
gov_exp	−0.227***	−0.227***	−0.253***	−0.228***
	(−6.01)	(−5.39)	(−6.00)	(−5.38)
Gfcf	0.114***	0.149***	0.140***	0.143***
	(3.13)	(5.05)	(4.82)	(4.97)
Hc	0.242	0.0646	0.112	0.172
	(0.74)	(0.19)	(0.30)	(0.45)
_cons	3.674***	3.567***	4.330***	3.567***
	(3.48)	(3.27)	(3.85)	(3.38)
Instruments	14	16	20	18
N	1062	954	906	931

t statistics in parentheses; * p < 0.1, ** p < 0.05, *** p < 0.01.

Table B7. Dynamic system GMM high-income countries.

	(1)	(2)	(3)	(4)
${\mathrm{g}}_{\mathrm{it}-1}$	0.333***	0.331***	0.294***	0.274***
	(6.78)	(6.22)	(5.91)	(6.02)
FDI	0.0201
	(0.96)
FDISEC		0.273***
		(2.83)
FDISERV		0.00633
		(1.55)
FDIPRIM		−0.0476***
		(−4.98)
HTFDISec			1.160**	1.045*
			(2.10)	(1.95)
MHTFDISec			−0.00164	0.00475
			(−0.01)	(0.02)
MLTFDISec			0.0757	0.0727
			(0.23)	(0.22)
LTFDISec			1.019***	0.970***
			(3.14)	(2.78)
HTFDIServ			0.0179
			(1.49)
LTFDIServ			−0.0127
			(−0.13)
d_credit	−0.0125***	−0.0107***	−0.0139***	−0.0131***
	(−3.61)	(−4.39)	(−4.87)	(−4.79)
inflation	0.0617**	0.0445	0.0454	0.0556
	(2.52)	(1.37)	(1.34)	(1.69)
pop_growth	−0.866***	−1.025***	−1.173***	−1.151***
	(−3.47)	(−5.10)	(−5.98)	(−5.80)
trade	0.00474**	0.00450**	0.00270	0.00316
	(2.00)	(2.14)	(1.48)	(1.57)
gov_exp	−0.202***	−0.186***	−0.217***	−0.211***
	(−3.66)	(−3.69)	(−4.25)	(−4.17)
gfcf	0.0440	0.0988***	0.0908***	0.0951***
	(0.89)	(3.57)	(3.12)	(3.37)
hc	0.267	−0.213	0.0193	−0.194
	(0.64)	(−0.48)	(0.04)	(−0.34)
_cons	4.249*	4.137**	4.615**	5.023**
	(1.93)	(2.35)	(2.25)	(2.44)
Instruments	14	16	20	18
N	689	624	596	603

t statistics in parentheses; * p < 0.1, ** p < 0.05, *** p < 0.01.

Table B8. Fixed effects (full sample).

	(1)	(2)	(3)	(4)
${\mathrm{g}}_{\mathrm{it}-1}$	0.134***	0.104***	0.0966**	0.102***
	(3.42)	(2.49)	(2.37)	(2.53)
FDI	−0.00223
	(−0.74)
FDISEC		0.0961***
		(3.30)
FDISERV		0.00623
		(1.57)
FDIPRIM		−0.0103
		(−0.79)
HTFDISec			1.694***	1.646***
			(5.03)	(4.80)
MHTFDISec			−0.193	−0.173
			(−1.04)	(−0.93)
MLTFDISec			−0.162	−0.154
			(−0.65)	(−0.63)
LTFDISec			0.650**	0.639**
			(2.31)	(2.31)
HTFDIServ			0.0101
			(1.65)
LTFDIServ			−0.0208** (−2.49)
d_credit	−0.0302***	−0.0350***	−0.0397***	−0.0384***
	(−4.55)	(−4.79)	(−5.21)	(−5.60)
inflation	−0.00126***	−0.00121***	−0.00130***	−0.00131***
	(−11.90)	(−11.54)	(−12.09)	(−11.06)
pop_growth	−1.471***	−1.938***	−1.944***	−1.888***
	(−6.41)	(−8.30)	(−6.47)	(−6.33)
trade	0.0142*	0.0216**	0.0221***	0.0182***
	(1.68)	(2.41)	(3.32)	(2.92)
gov_exp	−0.534***	−0.523***	−0.531***	−0.498***
	(−5.48)	(−5.89)	(−6.13)	(−5.82)
gfcf	0.185***	0.287***	0.267***	0.262***
	(2.84)	(6.71)	(6.13)	(6.09)
hc	1.068	1.041	0.780	0.724
	(0.90)	(0.84)	(0.63)	(0.66)
_cons	5.977*	3.665	5.140*	5.019*
	(1.86)	(1.26)	(1.78)	(1.89)
N	1062	954	906	931

t statistics in parentheses; * p < 0.1, ** p < 0.05, *** p < 0.01.

Table B9. Fixed effects high-income countries.

	(1)	(2)	(3)	(4)
${\mathrm{g}}_{\mathrm{it}-1}$	0.162***	0.159***	0.135***	0.126**
	(3.85)	(3.01)	(2.64)	(2.48)
FDI	0.00749
	(0.54)
FDISEC		0.205*
		(1.87)
FDISERV		0.00633
		(1.06)
FDIPRIM		−0.0376***
		(−3.45)
HTFDISec			1.596***	1.537***
			(4.33)	(4.38)
MHTFDISec			−0.197	−0.198
			(−1.12)	(−1.21)
MLTFDISec			−0.184	−0.200
			(−0.81)	(−0.85)
LTFDISec			0.558*	0.571**
			(2.00)	(2.11)
HTFDIServ			0.0173*
			(1.86)
LTFDIServ			−0.0175
			(−0.26)
d_credit	−0.0277***	−0.0300***	−0.0339***	−0.0322***
	(−4.02)	(−3.95)	(−4.12)	(−4.52)
inflation	0.0582	0.0341	0.0319	0.0350
	(1.99)	(0.96)	(0.99)	(1.10)
pop_growth	−1.455***	−1.673***	−1.676***	−1.807***
	(−5.86)	(−8.78)	(−6.57)	(−6.05)
trade	0.0197*	0.0249**	0.0275***	0.0251***
	(1.80)	(2.29)	(3.78)	(3.53)
gov_exp	−0.443***	−0.429***	−0.470***	−0.473***
	(−3.57)	(−4.01)	(−4.01)	(−4.27)
gfcf	0.204***	0.271***	0.256***	0.249***
	(2.71)	(5.54)	(4.88)	(4.72)
hc	0.0952	−0.627	−1.748	−1.428
	(0.06)	(−0.47)	(−1.21)	(−0.98)
_cons	6.495	6.808	11.43*	10.80*
	(1.09)	(1.37)	(2.05)	(1.97)
N	689	624	596	603

t statistics in parentheses; * p < 0.1, ** p < 0.05, *** p < 0.01.

Table B10. Secondary sector FDI classified by technology-dynamic system GMM (non-zero countries).

	(4.1)	(4.2)	(4.3)	(4.4)
${\mathrm{g}}_{\mathrm{it}-1}$	0.212***	0.278***	0.302***	0.271***
	(4.67)	(5.69)	(3.87)	(5.35)
HTFDISec	1.274**
	(2.24)
MHTFDISec		0.163
		(0.64)
MLTFDISec			0.188
			(0.32)
LTFDISec				0.439**
				(2.27)
d_credit	−0.0217***	−0.0175***	−0.0160***	−0.0172**
	(−4.35)	(−3.74)	(−2.99)	(−3.46)
inflation	−0.140**	−0.137**	−0.149**	−0.0708
	(−2.01)	(−1.93)	(−2.23)	(−1.19)
pop_growth	−1.228***	−1.157***	−1.135***	−1.024***
	(−3.71)	(−4.59)	(−4.38)	(−3.37)
trade	0.00181	0.00362	0.00333	0.00643
	(0.32)	(0.75)	(0.74)	(1.11)
gov_exp	−0.274***	−0.243***	−0.234***	−0.255***
	(−3.83)	(−4.57)	(−4.48)	(−3.66)
gfcf	0.110	0.112**	0.115**	0.0457
	(1.43)	(1.91)	(1.96)	(0.63)
hc	0.154	−0.172	−0.395	0.146
	(0.24)	(−0.29)	(−0.73)	(0.26)
_cons	6.362**	6.153**	6.516***	6.362**
	(2.41)	(2.46)	(2.82)	(2.23)
N	542	581	596	613
Instruments	15	15	15	15
AR(1) p-value	0.001	0.000	0.000	0.000
AR(2) p-value	0.029	0.046	0.055	0.027
AR(3) p-value	0.214	0.146	0.118	0.327
Sargan	0.813	0.399	0.408	0.933
Hansen	0.700	0.226	0.215	0.872

Sargan and Hansen p-values are reported in the table. Both Sargan and Hansen test the null that instruments as a group are exogenous. In all our models, we fail to reject the null hypotheses, thereby indicating that the instruments are valid.

Arellano, M., and S. Bond. 1991. “Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations.” The Review of Economic Studies 58 (2): 277. doi:10.2307/2297968.

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