The Impact of Foreign Direct Investment on Developing Countries

The Impact of Foreign Direct Investment on Developing Countries

Centro de Documentación e Información Mtro. Jesús Silva Herzog CEDI
The Impact of Foreign Direct Investment on Developing Countries. © UNU-WIDER
INSTITUTO DE INVESTIGACIONES ECONÓMICAS, UNAM
Centro de Documentación e InformaciónINTER t i p s ... 2 0 1 1 Servicio de diseminación selectiva en información económica
© Victor Medina Corona
Konstantin M. Wacker
The Impact of Foreign Direct Investment on Developing Countries. Terms of Trade.
Helsinki, UNU-WIDER, Working Paper No. 2011/06, February 2011, 45 p., ISSN 1798-7237, ISBN 978-92-9230-369-3
Abstract
This paper first shows that important economic arguments in favor of the Prebisch-Singer hypothesis of falling terms of
trade of developing countries have implicitly relied on the role of multinational corporations and foreign direct investment.
As of yet, the
relationship between the latter and terms of trade has not been empirically investigated. In order to start closing this gap
in research, data on 111 developing countries between 1980 and 2008 is analyzed using panel data methods. The
empirical results suggest that there is no reason to believe multinationals’ activities were responsible for a
possible decrease of the developing countries’ net barter terms of trade. On the contrary, foreign direct
investment seems to play a positive role for developing countries’ terms of trade.
The paper also investigates other possible variables structurally influencing terms of
trade and thus provides fruitful directions for future research.
Keywords: terms of trade, FDI, multinationals, Prebisch Singer hypothesis
JEL classification: C23, F23, O11
http://biblioteca.iiec.unam.mx
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