Information and communication technology and foreign direct investment: interactions and contributions to economic growth

Abstract

This study explores the joint effect of FDI and domestic capital stocks (ICT and non-ICT) on productivity and economic growth, by incorporating two additions to the recent literature. Firstly, biases due to the fact that the observed measures of domestic capital stocks have an FDI component (double counting) are taken into account, and secondly, the possibility that the effect may be heterogeneous. Using semiparametric econometric techniques, the output elasticities for 15 OECD countries for the period 1980–2004 are estimated. The results indicate that biases do exist and they are significant. When corrected, the effects of all three types of capital are positive, significant, and they vary across countries and time. Furthermore, there exist interactions between the three capital variables, implying a complimentary relationship between domestic (ICT and non-ICT) and FDI capital. Additionally, the rates of return to FDI are high and heterogeneous, suggesting that in most countries, there is need for more investment.