Agustín Bénétrix, Hayley Pallan, Ugo Panizza. The Journal of International Economics, September 2026.
Abstract:
This paper reassesses the relationship between FDI and economic growth in emerging and developing economies. We show that the aggregate FDI-growth relationship is not stable over time and that complementarities documented using data from the 1970s and 1980s disappear in more recent decades. Building a new sectoral FDI dataset we document substantial heterogeneity between FDI and sectoral growth and show that there is a positive association in the primary sector, no robust relationship in the secondary sector, and a negative relationship in the tertiary sector. To interpret these patterns, we examine the role of global value chains (GVCs). FDI is most strongly associated with growth in country–sectors with low GVC participation, while this relationship weakens or disappears as GVC integration increases. The effects also depend on the type of GVC integration. We conclude that the elusive aggregate FDI-growth relationship reflects how FDI is embedded in global production networks.