Graduate Thesis Or Dissertation

 

Foreign direct investment and productivity : financial openness thresholds Pubblico Deposited

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https://ir.library.oregonstate.edu/concern/graduate_thesis_or_dissertations/dn39x372s

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  • The last two decades have witnessed a triumph of free market policies in many developing countries and thus an increase in trade and financial openness. While economic theory provides a solid justification of the fact that trade and financial openness for a small economy with perfectly competitive markets improve resource allocation and thus national welfare, empirical evidence shows that financial openness does not necessarily boost the economic growth. Intuition suggests that there should be certain preconditions or thresholds for developing countries to benefit from financial openness. By applying Data Envelopment Analysis, robust OLS regressions and threshold analysis, we examine whether the effect of Foreign Direct Investment (FDI) on country's productivity is dependent upon different levels of financial openness. Our paper uses three measures of financial openness, namely, the value of total shares traded divided by market capitalization, the ratio of liquid liabilities to GDP and market capitalization. The empirical analysis shows that FDI has a positive effect on host country productivity based on a sample of 45 countries covering the period from 1980 through 2006. We also found that relationship between FDI and productivity is not monotonic and there exist threshold levels of financial openness at which productivity gain from FDI can be maximized.
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