Foreign Direct Investment and Productivity Growth: Theory

  • Ben Ferrett


This chapter presents several theoretical perspectives on the relationship between foreign direct investment (FDI) flows and productivity growth, interpreted as growth in total factor productivity (TFP), the joint productivity of a given bundle of inputs (e.g. capital and labour). Two ways in which a firm’s TFP can increase can be distinguished.1 A firm might receive superior technical knowledge from other firms (`spillovers’), or it might develop better techniques internally, via investment in research and development (R&D). The models outlined in this chapter can be viewed as formalisations of the linkage between FDI flows and these two mechanisms.


Foreign Direct Investment Productivity Growth Total Factor Productivity Trade Cost Local Firm 
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© Ben Ferrett 2005

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  • Ben Ferrett

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