Expectations and the Dynamic Feedback between Foreign Direct Investment and Economic Growth

This paper seeks to analyze the dynamic feedback between Foreign Direct Investment (FDI) and economic growth – larger FDI promotes higher GDP, while higher GDP can be achieved with higher levels of FDI. We use panels and a sample of 19 Latin American countries to estimate a dynamic FDI and a dynamic GDP equation that jointly characterize the evolution of both variables. We find that the dynamics of GDP and FDI are mostly driven by the expectations. Shocks of GDP or FDI were found to play no role affecting the dynamics

WAS LATIN AMERICA CORRECT IN RELYING IN FOREIGN DIRECT INVESTMENT TO IMPROVE EMPLOYMENT RATES?

This paper examines the effect of foreign direct investment (FDI) on employment generation for a group of Latin American countries in the period 1980-2006. Using a dynamic panel model, which is estimated with the Arellano-Bover/Blundell-Bond system estimator, I find that FDI has a positive and significant effect on the employment generation in host countries, which is driven by its effect on male labor force. This positive effect is particularly important for less developed economies, periods with low inflation, and for the later period of the sample, but suggests that only countries with high level of informality and those attracting low average inflows of FDI accrue this benefit.Trade and Labor Market Interactions; Foreign Direct Investment; Employment; Latin America & Caribbean