DP2155 Multinationals, Endogenous Growth and Technological Spillovers: Theory and Evidence

Author(s): Richard Baldwin, Henrik Braconier, Rikard Forslid
Publication Date: May 1999
Keyword(s): Endogenous Growth, Multinationals, Spillovers, Technology Transfer
JEL(s): F1, F2, F23, F43, O4
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2155

FDI has received surprisingly little attention in theoretical and empirical work on openness and growth. This paper presents a theoretical growth model where MNCs directly affect the endogenous growth rate via technological spillovers. This is novel since other endogenous growth models with MNCs, e.g. the Grossman-Helpman model, assume away the knowledge-spillovers aspect of FDI. We also present econometric evidence (using industry-level data from seven OECD nations) that broadly supports the model. Specifically, we find industry-level scale effects and international knowledge spillovers that are unrelated to FDI, but we also find that bilateral spillovers are boosted by bilateral FDI.