FDI and Industry in Developed and Developing Countries: A Comparative Dynamic Panel Analysis

The paper investigates the sector-specific dynamic impacts of FDI inflow on industrial productivity on a comparative basis between developed and developing countries. Different studies observe both positive and negative impacts of FDI on economic growth. However, the existing evidences have not cleared the sector-wise impact of FDI, particularly in industrial sector separately in developing and developed economies. We explore and compare the dynamic relationship between FDI and industrial performances in two groups of countries using data from UNCTAD and World Bank over the period of 1970-2015 in the dynamic panel framework. The stochastic properties of variables are looked into by carrying out various panel unit root tests followed by the GMM estimation. Empirical findings imply that FDI inflows significantly promote industrial growth in both groups of countries; however, the relationship is bi-directional in developing countries and the degree of influence is higher in developed nations.