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Dierk Herzer
''The long-run effect of FDI on TFP in the United States''
( 2017, Vol. 37 No.1 )
Governments all over the world spend large amounts of resources in order to attract foreign direct investment (FDI), often based on the assumption that FDI increases total factor productivity (TFP) by bringing with it better technology and knowledge spillovers to domestic firms. However, evidence for this assumption from macro data is sparse. This paper is the first to examine the long-run effect of FDI on TFP using aggregate time-series data for the United States. The results show (i) that FDI is positively related to TFP in the long run, (ii) that FDI Granger-causes TFP growth in the long run, and (iii) that there is no long-run feedback from TFP to FDI.
Keywords: FDI, TFP, United States, Cointegration, Causality
JEL: F2 - International Factor Movements and International Business: General
O4 - Economic Growth and Aggregate Productivity: General
Manuscript Received : Nov 29 2016 Manuscript Accepted : Mar 21 2017

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