Exploring the Literature: Does Foreign Direct Investment Affect Total factor productivity in Developing Economies?

Ayesha Serfraz


This paper analyzes the relationship between Foreign Direct Investment inflows (FDI) and Total Factor Productivity (TFP) by studying the existing literature on the topic. Numerous studies have been conductive to test the relationship between these two variables but there is no consensus regarding the direction of affiliation. The basic purpose of this study is to find the reason behind different answers and for this reason the existing body of literature on this topic has been referred to. In addition, the concepts of FDI and TFP have been discussed along-with the effects of FDI on developing countries and its importance. After analyzing different studies relevant to this topic, it has been concluded that the difference in results are mainly due to econometric techniques applied by different researchers to test the relationship empirically. Furthermore, some statistical figures and their analysis have been presented in appendix.


Foreign Direct Investment, Total Factor Productivity, Developing economies. Jel Classification Codes: F21, O47, O57

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