A STUDY OF THE TECHNOLOGICAL CONTENT OF FOREIGN DIRECT INVESTMENT IN DEVELOPING COUNTRIES, ITS DETERMINANTS AND ITS EFFECT ON THE ECONOMIC PERFORMANCE OF THOSE COUNTRIES.

Antonio MARASCO (University of Nijmegen and University College London)

Recent empirical studies concerning the impact of foreign direct investment (FDI) on the economic performance of developing countries have all been taking into account FDI as a whole. However, the theoretical literature on the topic argues that more attention should be devoted to distinguishing FDI by type, and suggests that FDI with high technological content play a peculiar role. This paper investigates the existence and the magnitude of this peculiar effect. This is a cross sectional study of (approximately) 30 developing countries, for which we estimate two equations. In the first, the share of high tech FDI is regressed on population and average years of schooling, as proxies for the resource endowments of the host country, and on inflation, as proxy for the degree of macroeconomic uncertainty affecting that particular country. In the second, we regress the level of per capita GDP on the share of high tech FDI.

We find strong evidence that countries with larger factor endowments, in terms both of population and the stock of human capital, and countries that enjoy lesser uncertainty, are able to attract more FDI with a higher technological content. We also find some evidence pointing towards a positive relationship between the share of high tech FDI and the level of per capita GDP in the host country.