Foreign direct investment and total factor productivity in Southeast Asia.

Summary In this thesis, we propose an analysis of the impact of foreign direct investment (FDI) on the total factor productivity (TFP) of Indonesia, Malaysia, the Philippines and Thailand. The analysis is an extension of the debate on the nature of growth in Asian countries and a search for ways in which these countries can improve their TFP. We focus this research on FDI as a channel for host countries to access foreign R&D externalities. From a theoretical point of view, we show that the effect of inward FDI on the TFP of these countries is through the indirect effect of increasing imports of intermediate goods and equipment to meet the production needs of subsidiaries. From an empirical point of view, our estimates give three results. The first, derived from a time series analysis over the period 1977-96, shows growth based largely on the accumulation of production factors in the countries studied. The improvement in TFP over the period analyzed is small. The second result, obtained by panel and time series analyses over the period 1982-96, shows a positive and significant impact of foreign R&D externalities transferred by FDI and imports on TFP. The third result, based on panel analysis of the 1982-96 period, suggests that inward FDI significantly increases imports of intermediate goods and equipment. We therefore conclude that it is possible for a country to rely on inward FDI to improve its output growth, while emphasizing that the impact of FDI on growth relies on the import-increasing effect of this investment.