FDI Spillovers, Efficiency Change and Host Country Labor Productivity: Evidence from GCC Countries

Abstract

This study contributes to the empirical literature by investigating the hypothesis that foreign direct investment (FDI) inflows yield positive productivity spillovers to Gulf Cooperation Council (GCC) countries during the period 1995-2011. Using Blundell–Bond dynamic panel Generalized Method of Moments (GMM) estimators, the main finding of dynamic panel data regressions shows that FDI inflows yield weak and negative productivity spillovers to GCC countries through its own or its interaction with host country absorptive capacity. In addition, the empirical results show that efficiency change (movements toward or away from the frontier) and political stability are the main factors that affect labor productivity growth in GCC countries. These results are consistent with previous single-country studies on technology transfer to developing countries.