DP11959 | The Benefits from Foreign Direct Investment in a Cross-Country Context: A Meta-Analysis

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There is wide consensus about the economic benefits from foreign direct investment. Yet these benefits are often viewed as being conditional, that is, as dependent on recipient countries having reached minimum levels of institutional, financial or human capital development or, at the micro level, on the type of inter-firm linkages (forwards, backwards, or horizontal). We conduct a meta-analysis to summarize and explain the strength and heterogeneity of these conditionalities. We use hand-collected information from 175 studies and around 1100 estimates in Eastern Europe, Asia, Latin America and Africa from 1940 to 2008. We propose a new methodological framework that allows country- and firm-level effects to be combined. There are two principal findings: (a) the difference between “macro” and “firm” effects is positive and significant (with the former at least six times larger than the latter); and (b) the benefits from FDI are substantially less “conditional” than commonly thought.