Advertisement

Atlantic Economic Journal

, Volume 39, Issue 2, pp 103–115 | Cite as

FDI, Education, and Economic Growth: Quality Matters

  • Miao Wang
  • M. C. Sunny Wong
Article

Abstract

In this paper, we revisit the results from the influential study by Borensztein et al. (Journal of International Economics 45:115–135, 1998), which argues that inward foreign direct investment (FDI) promotes the economic growth in a less developed host country only when the host country obtains a threshold level of secondary schooling. Borensztein et al. (Journal of International Economics 45:115–135, 1998) only focus on the quantity of education. We take into consideration both the quantity and the quality of education. We adjust the original schooling data in Borensztein et al. (Journal of International Economics 45:115–135, 1998) by two quality of education indices and re-estimate their model. We find that the complementarity between inward FDI and schooling still exists, but the threshold level of schooling in our study is lower than the threshold calculated in Borensztein et al. (Journal of International Economics 45:115–135, 1998). Our results support the importance of education quality and suggest that with improved quality of education, it does not take as much quantity of schooling, as established in Borensztein et al. (Journal of International Economics 45:115–135, 1998), for inward FDI to have a positive impact on economic growth in the host country.

Keywords

FDI Schooling Quality of education Economic growth 

JEL

F20 

References

  1. Aghion, P., & Howitt, P. (1992). A model of growth through creative destruction. Econometrica, 60(2), 323–351.CrossRefGoogle Scholar
  2. Barro, R. J. (1997). Determinants of economic growth: A cross-countryempirical study. Cambridge: MIT.Google Scholar
  3. Barro, R. J., & Lee, J. W. (1993). International comparisons of educational attainment. Journal of Monetary Economics, 32(3), 363–394.CrossRefGoogle Scholar
  4. Blomstrom, M., Lipsey, R., & Zejan, M. (1994). What explains growth in developing countries? In W. Baumol, R. Nelson, & E. Wolff (Eds.), Convergence of productivity: Cross-national studies and historical evidence (pp. 243–259). Oxford: Oxford University Press.Google Scholar
  5. Blonigen, B., & Wang, M. (2005). Inappropriate pooling of wealthy and poor countries in empirical FDI studies. In T. Moran, E. Graham, & M. Blomstrom (Eds.), Does foreign direct investment promote development? (pp. 221–244). Washington DC: Institute for International Economics.Google Scholar
  6. Borensztein, E., De Gregorio, J., & Lee, J. W. (1998). How does foreign investment affect growth? Journal of International Economics, 45(1), 115–135.CrossRefGoogle Scholar
  7. Bosworth, B., & Collins, S. (2003). The empirics of growth: An update. Brookings Papers on Economic Activity, 2, 113–206.CrossRefGoogle Scholar
  8. Carkovic, M., & Levine, R. (2005). Does foreign direct investment accelerate economic growth? In T. Moran, E. Graham, & M. Blomstrom (Eds.), Does foreign direct investment promote development? (pp. 195–220). Washington, DC: Institute for International Economics.Google Scholar
  9. Chang, R., Kaltani, L., & Loayza, N. (2009). Openness can be good for growth: The role of policy complementarities. Journal of Development Economics, 90(1), 33–49.CrossRefGoogle Scholar
  10. Choe, J. I. (2003). Do foreign direct investment and gross domestic investment promote economic growth? Review of Development Economics, 7(1), 44–57.CrossRefGoogle Scholar
  11. Durham, B. (2004). Absorptive capacity and the effects of foreign direct investment and equity foreign portfolio investment on economic growth. European Economic Review, 48(2), 285–306.CrossRefGoogle Scholar
  12. Hanushek, E., & Kimko, D. (2000). Schooling, labor-force quality, and the growth of nations. The American Economic Review, 90(5), 1184–1208.CrossRefGoogle Scholar
  13. Hanushek, E., & Woessmann, L. (2007). The role of education quality for economic growth. Policy Research Working Paper Series, 4122, The World Bank.Google Scholar
  14. Lee, J. W., & Barro, R. J. (2001). Schooling quality in a cross-section of countries. Economica, 68(272), 465–488.CrossRefGoogle Scholar
  15. Romer, P. (1990). Endogenous technological change. Journal of Political Economy, 98(5), S71–S102.CrossRefGoogle Scholar
  16. Solow, R. M. (1956). A contribution to the theory of economic growth. Quarterly Journal of Economics, 70(1), 65–94.CrossRefGoogle Scholar
  17. United Nations. (various issues). World investment report. New York: United Nations.Google Scholar
  18. Wang, M., & Wong, M. C. S. (2009). FDI and economic growth: The growth accounting perspective. Economic Inquiry, 47(4), 701–710.CrossRefGoogle Scholar
  19. Xu, B. (2000). Multinational enterprises, technology diffusion, and host country productivity growth. Journal of Development Economics, 62(2), 477–493.CrossRefGoogle Scholar
  20. Zhang, K. (2001). Does foreign direct investment promote economic growth? Evidence from East Asia and Latin America. Contemporary Economic Policy, 19(2), 175–185.CrossRefGoogle Scholar

Copyright information

© International Atlantic Economic Society 2011

Authors and Affiliations

  1. 1.Department of EconomicsMarquette UniversityMilwaukeeUSA
  2. 2.Department of EconomicsUniversity of San FranciscoSan FranciscoUSA

Personalised recommendations