Knowledge Spillovers, Absorptive Capacities and the Impact of FDI on Economic Growth: Empirical Evidence from Transition Economies

Abstract

In this paper we employ econometric analysis to investigate the impact of FDI and the related externalities on economic growth in transition economies. We contribute to recent literature by using more reliable measure of FDI while also depicting the character of FDI and related knowledge spillovers, as well as by examining the importance of technological and innovative capabilities in explaining the growth performance among transition economies, not previously studied. Overall, the results of our empirical analysis seem to render support to the hypothesis that FDI contribute to economic growth predominantly through knowledge spillovers, and that the higher level of technological development proxied by government and business R&D expenditures is associated with better growth performance among transition economies. Essentially, by the way we measure FDI in this analysis (i.e. the share of FDI in the manufacturing gross value added) and in the view of the integrated framework in which we study the relationship between FDI and economic growth, allows us to stipulate that the positive impact of FDI on economic growth is associated with more knowledge-capability and efficiency-seeking FDI.

Impact of Foreign Direct Investment on Economic Growth of Pakistan

“…According to researchers, FDI poses a positive effect on the economic development; along with this, helps to enjoy the status of economies of scale, improved human resource, setup and remunerations, and it also plays a role to resolve domestic differences, cooperate vigorously with FDI and enhance financial development in China [ 36 ]. According to the empirical analysis by [ 37 ], the contribution of Foreign Direct Investment on economic growth in the area is enhanced as a result of development of financial sector. Foreign Direct Investment is vital way for transfer of technology (ToT) to the country where investment is made, helps in growing the economy of the host country [ 38 ]; however, the greater productivity of FDI and positive results of the FDI in host country occur to the best if the host country has a least threshold of human resource [ 39 ].…”

Firm’S Absorptive Capacity: The Case of Vietnamese Manufacturing Firms

“…Respectively, there are many proxies to measure the absorptive capacity of firms. Many papers used R&Drelated variables to represent for absorptive capacity, such as R&D intensity (Behera, 2015;Mowery & Oxley, 1995;Tsai, 2001), R&D expenditures (Girma, Gorg, & Pisu, 2008;Silajdzic & Mehic, 2015) or patents (Ahuja & Katila, 2001). However, the findings are not consistent.…”

Accelerating Economic Development and Improving the Current Account Balance: What Roles can Industrial Policy Play in The Gambia?

“…The presence of FDI in the export sector expands the export and revenue bases of the economy, improve export quality as well as introduce foreign technology that the country desperately needs. FDI, if directed to productive sectors generates growth, creates employment and remains an important vehicle for technology diffusion through knowledge spillovers as concluded by Silajdzic and Mehic (2015), Branstetter (2006). In return, The Gambia could raise taxes on the importation of specific simple products such as foodstuff, beverages, clothing, and furniture, while directing and influencing the importation of capital goods for the development of domestic industries.…”