FDI, banking crises and growth: direct and spill over effects

ABSTRACT

This study suggests a new decomposition of the effect of foreign direct investment (FDI) on the long-term growth of developing countries. It reveals that FDI not only has a direct positive effect on growth, but also increases it by reducing the recessionary effect resulting from a banking crisis. However, these advantages are conditioned by the FDI threshold, which in turn depends on the ‘absorption capacity’ of the host country.

KEYWORDS:

• Growth
• FDI
• system GMM
• panel logit model

JEL CLASSIFICATION:

• F65
• F36
• G01
• G15

Disclosure statement

No potential conflict of interest was reported by the authors.

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.