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.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
In BDL (1998), a complete cycle of secondary school takes 6 years.
Regression results using other education quality indices are not reported, but available upon request.
References
Aghion, P., & Howitt, P. (1992). A model of growth through creative destruction. Econometrica, 60(2), 323–351.
Barro, R. J. (1997). Determinants of economic growth: A cross-countryempirical study. Cambridge: MIT.
Barro, R. J., & Lee, J. W. (1993). International comparisons of educational attainment. Journal of Monetary Economics, 32(3), 363–394.
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.
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.
Borensztein, E., De Gregorio, J., & Lee, J. W. (1998). How does foreign investment affect growth? Journal of International Economics, 45(1), 115–135.
Bosworth, B., & Collins, S. (2003). The empirics of growth: An update. Brookings Papers on Economic Activity, 2, 113–206.
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.
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.
Choe, J. I. (2003). Do foreign direct investment and gross domestic investment promote economic growth? Review of Development Economics, 7(1), 44–57.
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.
Hanushek, E., & Kimko, D. (2000). Schooling, labor-force quality, and the growth of nations. The American Economic Review, 90(5), 1184–1208.
Hanushek, E., & Woessmann, L. (2007). The role of education quality for economic growth. Policy Research Working Paper Series, 4122, The World Bank.
Lee, J. W., & Barro, R. J. (2001). Schooling quality in a cross-section of countries. Economica, 68(272), 465–488.
Romer, P. (1990). Endogenous technological change. Journal of Political Economy, 98(5), S71–S102.
Solow, R. M. (1956). A contribution to the theory of economic growth. Quarterly Journal of Economics, 70(1), 65–94.
United Nations. (various issues). World investment report. New York: United Nations.
Wang, M., & Wong, M. C. S. (2009). FDI and economic growth: The growth accounting perspective. Economic Inquiry, 47(4), 701–710.
Xu, B. (2000). Multinational enterprises, technology diffusion, and host country productivity growth. Journal of Development Economics, 62(2), 477–493.
Zhang, K. (2001). Does foreign direct investment promote economic growth? Evidence from East Asia and Latin America. Contemporary Economic Policy, 19(2), 175–185.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Wang, M., Wong, M.C.S. FDI, Education, and Economic Growth: Quality Matters. Atl Econ J 39, 103–115 (2011). https://doi.org/10.1007/s11293-011-9268-0
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11293-011-9268-0