Three empirical essays on foreign direct investment, research and development, and insurance

Abstract

This dissertation consists of three independent essays, all of which are empirical treatments
of different determinants of economic growth.

The first essay, which is in Chapter 2, evaluates the role economic freedom plays
in mediating the effect of foreign direct investment (FDI) on growth. It tests whether
countries with sufficiently high level of economic freedom can exploit FDI more efficiently. It
uses cross-country observations from 84 countries for the 1976-2005 period. It applies a
threshold regression which is flexible enough to accommodate the possibility that the
impact of FDI on growth ‘kicks in’ only when the level of economic freedom exceeds some
unknown threshold. The results show that FDI has no direct (linear) effect on output growth.
Instead, its impact is conditional on the level of economic freedom in the host countries.
Only countries whose level of economic freedom has exceeded the threshold level of
economic freedom benefited from FDI inflows. In countries below the threshold level, FDI
deliver no beneficial effects. The findings are robust to several sensitivity checks and
consideration of endogeneity.

The second essay (Chapter 3) tests the channels and magnitude of R&D spillovers
from developed countries to East Asian countries (China, Korea, Malaysia, Singapore, and
Thailand). It examines three possible spillover channels - imports, inward FDI, and outward
FDI - using panel data for the period 1984-2005. It uses a novel panel estimator which
allows for cross-sectional dependence and provides country-specific estimates of R&D
effects. There are several important conclusions emerge. First, both domestic and foreign
R&D are important for productivity improvements. Second, imports are the most important
channel of spillovers while spillover effects via FDI in uncertain. Third, there is some
evidence that domestic R&D helps to increase the incidence of R&D spillovers, especially
via import channel. Fourth, the U.S. is a relatively stronger provider of spillovers than
Japan.

Chapter 4, which is the final essay, examines the impact of insurance sector
development on output growth, capital accumulation and productivity improvement. It uses
panel data from 52 countries for the period 1981-2005, and applies a recent generalizedmethod-
of moments (GMM) dynamic panel estimator. The results show that the
development of insurance sector is important for long-run output growth, capital
accumulation and productivity growth. For developing countries, insurance affects growth
predominantly through capital accumulation while in developed countries it enhances
productivity growth. The findings are robust to biases introduced by unobserved countryspecific
effects, simultaneity, weak or numerous instruments. It remains valid even after
controlling for bank and stock market developments.

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Identifiers

ORCID for Jean-Yves Pitarakis: orcid.org/0000-0002-6305-7421

ORCID for Hector Calvo Pardo: orcid.org/0000-0001-6645-4273

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