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Is the Source of FDI Important to Emerging Market Economies? Evidence from Japanese and U.S. FDI

This paper takes the position that technology transfers associated with foreign direct investment inflows (FDI) are an important determinant of economic growth in developing countries. The paper also posits that technology transfers, ceteris paribus, depend on the attributes of FDI providers, particularly as they relate to the degree of technological advancement and the behavioral aspects of the technology transfer. Japan and the U.S. are two important sources of FDI where multinational corporations domiciled in the two nations exhibit distinct variation in these attributes. Consistent with earlier research, the findings of this paper lend support for a positive role of FDI inflows from the advanced countries in increasing the economic growth of developing countries. The paper further finds some evidence that the relationship between the economic growth of the host countries and FDI inflows is stronger for U.S. originated FDI than that of Japanese originated FDI. This finding is consistent with the notion that U.S. multinational firms are more effective in generating technology transfers and spillovers to developing countries than do Japanese multinational firms.