Foreign Knowledge Spillovers and Total Factor Productivity Growth: Evidence from Four ASEAN Countries


1 Department of Economics, Faculty of Social Sciences, Razi University

2 Faculty of Economic Sciences, University of Warsaw


This study examines the dynamic relationship between foreign direct investment (FDI) and total factor productivity having controlled for other channels of external openness: exports and imports in four ASEAN countries: Indonesia, Malaysia, Singapore, and Thailand. We employ the panel data analysis PDA (fixed effect and dynamic panel models) as well as the panel cointegration and Granger causality methods, using the data set for the period 1975-2010. The empirical results provide strong evidence on the impact of FDI and other channels of external openness on total factor productivity in ASEAN countries. We also find a short run and long run causality among these variables during the period of our study.


Aghion, P., & Howitt, P. (1992). A Model of Growth through Creative Destruction. Econometrica, 60, 323-351.

Aitken, B. J., & Harrison, A. E. (1999). Do Domestic Firms Benefit From Direct Foreign Investment? Evidence from Venezuela. American Economic Review, 89, 605-618.

Akinlo, A. (2006). Foreign Direct Investment and Growth in Nigeria: An Empirical Investigation. Journal of Policy Modeling, 26, 627-639

Alfaro, L., Kalemli-Ozcan, S., & Sayek, S. (2009). FDI, Productivity and Financial Development. The World Economy, 32(1), 111-135.

Apergis, N., & Payne, J. E. (2009). Energy Consumption and Economic Growth: Evidence from the Commonwealth of Independent States. Energy Econ, 31, 641-647.

Arnold, J., & Smarzynska-Javorcik, B. (2009). Gifted Kids or Pushy Parents? Foreign Direct Investment and Plant Productivity in Indonesia.  Journal of International Economics, 79(1), 42-53.

Arrow, K. J. (1962). The Economic Implications of Learning by Doing. Review of Economic Studies, 29, 155-73.

Aw, B. Y., Chung, S., & Roberts, M. J. (2000). Productivity and Turnover in the Export Market: Micro-level Evidence from Taiwan (China) and the Republic of Korea. World Bank Economic Review, 14, 65-90.

Balasubramanyam, V. N., Salisu, M., & Sapsford, D. (1996). Foreign Direct Investment and Growth in EP and IS Countries. Economic Journal, 106, 92-105.

Baldwin, R. E. (2004). Challenges to Globalization, Analyzing the Economics. Chicago: University of Chicago Press.

Navaretti, B. G., & Venables, A. (2004). Multinational Firms in the World Economy. Princeton: Princeton University Press.

Barro, R. J., & Martin, X. S. I. (2004). Economic Growth, Second Edition. Cambridge, MA:  MIT Press.

---------- (1997). Technological Diffusion, Convergence and Growth. Journal of Economic Growth, 2, 1-26.

Ben-David, D. (1996). Trade and Convergence among Countries. Journal of International Economics, 40, 279-298.

---------- (1993). Equalizing Exchange: Trade Liberalization and Income Convergence. Quarterly Journal of Economics, 108, 653-679.

Ben-David, D., & B. Loewy, M. (2003). Trade and the Neoclassical Growth Model. Journal of Economic Integration, 18, 1-16.

---------- (1998). Free Trade, Growth and Convergence. Journal of Economic Growth, 32, 143-170.

Bertschek, I. (1995). Product and Process Innovation as a Response to Increasing Imports and Foreign Direct Investment. Journal of Industrial Economics, 42, 341-357.

Bhagwati, J. N. (1978). Foreign Trade Regimes and Economic Development: Anatomy and Consequences of Exchange Control Regimes. Cambridge, MA: Ballinger Publishing Company.

Bhagwati, J. N., & Thirukodikavaln, S. (1975).  Foreign Trade and Economic Development. New York: Columbia University Press.

Blalock, G., & Gertler, P. J. (2009). How Firm Capabilities Affect Who Benefits from Foreign Technology. Journal of Development Economics, 90(2), 192-199.

---------- (2008). Welfare Gains from Foreign Direct Investment through Technology Transfer to Local Suppliers. Journal of International Economics, 74(2), 402-421.

---------- (2005). Foreign Direct Investment and Externalities: The Case for Public Intervention. In M. Theodore, E. M. Graham, & M. Blomström (Eds.), Does Foreign Direct Investment Promote Development? Washington, DC: Institute for International Economics.

---------- (2004). Welfare Gains from Foreign Direct Investment through Technology Transfer to Local Suppliers. Working Paper, Department of Applied Economics and Management, Retrieved from

---------- (2002). Firm Capabilities and Technology Adoption: Evidence from Foreign Direct Investment in Indonesia. Working Paper, Department of Applied Economics and Management, Retrieved from



Blomström, M. (1986). Foreign Investment and Productive Efficiency: The Case of Mexico. Journal of International Economics, 35, 97-110.

Blomström, M., & Persson, H. (1983). Foreign Investment and Spillover Efficiency in an Underdeveloped Economy: Evidence from Mexican Manufacturing Industry. World Development, 11, 492-501.

Blomstrӧm, M., & Kokko, A. (1998). Multinational Corporations and Spillovers. Journal of Economic Surveys, 12(2), 1-31.

Bloningen, B., & Wang, M. (2005). Inappropriate Pooling of Wealthy and Poor Countries in Empirical FDI Studies. Working Paper, Institute for International Economics, Retrieved from

Braga, H., & Willmore, L. (1991). Technological Imports and Technological Effort: An Analysis of Their Determinants in Brazilian Firms. Journal of Industrial Economics, 39, 421-432.

Borensztein, E., De Gregorio, J., &, Lee, J. W. (1998). How Does Foreign Direct Investment Affect Economic Growth? Journal of International Economics, 45, 115-135.

Carkovic, M., & Ross, L. (2005). Does Foreign Direct Investment Accelerate Economic Growth? Working Paper, Institute for International Economics, Retrieved from

Carr, D. L., Markusen, J. R., & Maskus, K. E. (2001). Estimating the Knowledge-Capital Model of the Multinational Enterprise. American Economic Review, 91(3), 693-708.

Caves, R. (2007). Multinational Enterprise and Economic Analysis (3rd Ed.). Cambridge: Cambridge University Press.

---------- (1974). Multinational Firms, Competition and Productivity in Host Country Markets. Economica, 41, 176–193.

Choe, J. (2003). Do Foreign Direct Investment and Gross Domestic Investment Promote Economic Growth? Review of Development Economics, 7(1), 44-57.

Chowdhury, A., & George, M. (2006). FDI and Growth: What Causes What? World Economy, 29, 9-19.

Cieślik A., & Kaniewska, M. (2004). Telecommunications Infrastructure and Regional Economic Development: The Case of Poland. Regional Studies, 38, 713-725.

Cieślik A., & Tarsalewska, M. (2011). External Openness and Economic Growth in Developing Countries. Review of Development Economics, 15(4), 729-744.

Coe, D. T., Helpman, E., & Hoffmaister, A. (1997). North-South R&D Spillovers. European Economic Review, 39, 859-887.

De Mello, L. (1999). Foreign Direct Investment-Led Growth: Evidence from Time Series and Panel Data. Oxford Economic Papers, 51, 133-151.

---------- (1997). Foreign Direct Investment in Developing Countries and Growth: A Selective Survey. Journal of Development Studies, 34(1), 1-34.

Desai, M., Foley, C., & Forbes, K. (2008). Financial Constraints and Growth: Multinational and Local Firm Responses to Currency Depreciations. Review of Financial Studies, 21(6), 2857-2888.

Dollar, D., & Aart, K. (2003). Institutions, Trade and Growth.  Journal of Monetary Economics, 50, 133-162.

Duczynski, P. (2003). Convergence in a Model with Technological Diffusion and Capital Mobility. Economic Modelling, 20, 729-740.

---------- (2002). Technological Diffusion in the Ramsey Model. International Journal of Business and Economics, 1, 243-250.

Dunning, J. H. (1981). International Production and the Multinational Enterprise. London: George, Allen, and Unwin Press.

Ethier, W. (1982). National and International Returns to Scale in the Modern Theory of International Trade. American Economic Review, 72, 389-405.

Edwards, S. (1998). Openness, Productivity and Growth: What do We Really Know? Economic Journal, 108, 383-398.

---------- (1993). Openness, Trade Liberalization and Growth in Developing Countries. Journal of Economic Literature, 31, 1358-1593.

Engle, R. F., & Granger, C. W. J. (1987). Co-integration and Error-Correction: Representation, Estimation, and Testing. Econometrica, 55, 251–276.

Feder, G. (1982). On Exports and Economic Growth.  Journal of Development Economics, 12, 59-73.

Fernandes, A. M., & Paunov, C. (2012). Foreign Direct Investment in Services and Manufacturing Productivity: Evidence for Chile. Journal of Development Economics, 97(2), 305-321.

Findlay, R. (1978). Relative Backwardness, Direct Foreign Investment and the Transfer of Technology: A Simple Dynamic Model. Quarterly Journal of Economics, 92, 1-16.

Gereffi, G. (1999). International Trade and Industrial Upgrading in the Apparel Commodity Chain. Journal of International Economics, 48, 37-70.

Germidis, D. (1977). Transfer of Technology by Multinational Corporations. Paris: Development Center of the OECD.

Gerschenkron, A. (1962). Economic Backwardness in Historical Perspective. Cambridge, MA: Harvard University Press.

Griffith, R. (1999). Using the ARD Establishment Level Data to Look at Foreign Ownership and Productivity in the UK. Economic Journal, 109, 416-442.

Grossman, M., & Helpman, E. (1991). Innovation and Growth in the Global Economy. Cambridge, MA: MIT Press.

---------- (1989). Product Development and International Trade. Journal of Political Economy, 97, 1261-1283.

Haddad, M., & Harrison, A. (1993). Are There Positive Spillovers From Direct Foreign Investment? Evidence from Panel Data from Morocco. Journal of Development Economics, 42, 51-74.

Hansen, H., & Rand, J. (2006). On the Casual Links between FDI and Growth in Developing Countries. World Economy, 29, 21-41.

Harrison, A. (1996). Openness and Growth: A Time Series, Cross Country Analysis for Developing Countries. Journal of Development Economics, 48, 419-447.

Helpman, E., Melitz, M. J., & Stephen, R. Y. (2004). Export versus FDI with Heterogeneous Firms. American Economic Review, 94, 300-316.

Herzer, D., Klasen, S., & Nowak-Lehman, F. (2008). In Search of FDI-Led Growth in Developing Countries: the Way Forward. Economic Modelling, 3, 793-810.

Hobday, M. (1995). Innovation in East Asia: The Challenge to Japan. Edward Elgar, Brookfield.

Im, K. S., Pesaran, M. H., & Shin, Y. (2003). Testing for Unit Roots in Heterogeneous Panels. Journal of Economic, 115, 53-74.

Katrak, H. (1989). Imported Technologies and R&D in Newly Industrializing Countries. Journal of Development Economics, 42, 75-88.

Keller, W. (2004). International Technology Diffusion. Journal of Economic Literature, 42, 752-782.

---------- (2000). Do Trade Patterns and Technology Flows Affect Productivity Growth? World Bank Economic Review, 14, 17-47.

Keller, W., & Yeaple, S. R. (2009). Multinational Enterprises, International Trade and Productivity Growth: Firm-level Evidence from the United States. Review of Economics and Statistics, 91, 821-831.

Krueger, A. (1978). Foreign Trade Regimes and Economic Development: Liberalization Attempts and Consequences. Cambridge, MA: Ballinger Publishing for National Bureau of Economic Research.

Lensnik, R., & Morrissey, O. (2006). Foreign Direct Investment: Flows, Volatility, and the Impact on Growth. Review of International Economics, 14, 478-493.

Levin, A., Lin, C. F., & Chu, C. S. J. (2002). Unit Root Tests in Panel Data: Asymptotic and Finite-Sample Properties. Journal of Econometrics, 108, 1-24.

Li, X., & Xiaming, L. (2005). Foreign Direct Investment and Economic Growth: An Increasingly Endogenous Relationship. World Development, 33, 393-407.

Liu, Z. (2002). Foreign Direct Investment and Technology Spillover: Evidence from China. Journal of Comparative Economics, 30, 579-602.

Liu, X., & Chenggang, W. (2003). Does Foreign Direct Investment Facilitate Technological Progress? Evidence from Chinese Industries. Research Policy, 32, 945-953.  

Liu, Z. (2008). Foreign Direct Investment and Technology Spillovers: Theory and Evidence. Journal of Development Economics, 85, 176-193.

Lucas, R. (1988). On the Mechanics of Economic Development. Journal of Monetary Economics, 22, 3-42.

Mansfield, E., & Romeo, A. (1980). Technology Transfer to Overseas Subsidiaries by US- Based Firms. Quarterly Journal of Economics, 95(4), 737-750.

Marshall, A. (1920). Principles of Economics (8th Ed.). London: Macmillan.

Markusen, J. (2002). Multinational Firms and the Theory of International Trade. Cambridge, MA: MIT Press.

Mayer-Foulkes, D., & Nunnenkamp, P. (2009). Do Multinational Enterprises Contribute to Convergence or Divergence? A Disaggregated Analysis of US FDI. Review of Development Economics, 13, 304-318.

Michaely, M. (1977). Exports and Growth: An Empirical Investigation. Journal of Development Economics, 4, 49-53.

Mitton, T. (2006). Stock Market Liberalization and Operating Performance at the Firm Level. Journal of Financial Economics, 81(3), 625-647.

Moen, J. (2000). Is Mobility of Technical Personnel a Source of R&D Spillovers? National Bureau of Economic Research, Working Paper, Retrieved from

Motta, M., Fosfuri, A., & Rønde, T. (2001). Foreign Direct Investment and Spillovers through Workers’ Mobility. Journal of International Economics, 53(1), 205-222.


Navaretti, G., Checchi, D., & Turrini, A. (2003). Adjusting Labor Demand: Multinational versus National Firms-A Cross-European Analysis. Journal of the European Economic, 1(2-3), 708-719.

OECD. (1998). Open Markets Matter: The Benefits of Trade and Investment Liberalization. Paris: OECD, Retrieved from

Oliva, M., & Rivera‐Batiz, L. A. (2002). Political Institutions, Capital Flows and Developing Country Growth: An Empirical Investigation. Review of Development Economics, 6, 248-62.

Olofsdotter, K. (1998). Foreign Direct Investment, Country Capabilities and Economic Growth. WeltwirtschaftlichesArchiv, 134, 534-547.

Pedroni, P. (1999). Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors. Oxford Bulletin of Economics and Statistics November Special Issue, Retrieved from

Ram, R., & Zhang, K. H. (2002). Foreign Direct Investment and Economic Growth: Evidence from Cross-Country Data for the 1990s. Economic Development and Cultural Change, 51, 203-215.

Rebelo, S. (1991). Long-Run Policy Analysis and Long-Run Growth. Journal of Political Economy, 99, 500-521.

Rhee, J., & Belot, T. (1989). Export Catalysts in Low-Income Countries. World Bank Working Paper, Retrieved from

Rodriguez-Clare, A. (1996). Multinationals, Linkages, and Economic Development. American Economic Review, 86(4), 852-873.

Rodriguez, F., & Dani, R. (2001). Trade Policy and Economic Growth: A Skeptic’s Guide to the Cross-National Evidence.Cambridge, MA: MIT Press.

Romer, P. (1993). Endogenous Technological Change.  Journal of Political Economy, 98, 71-102.

---------- (1987). Growth Based on Increasing Returns Due to Specialization. American Economic Review, 77, 56-65.

---------- (1986). Increasing Returns and Long-Run Growth. Journal of Political Economy, 94, 1002-1037.

Roos, J., Edvinsson, L., & Dragonetti, N. C. (1997).  Intellectual Capital: Navigating the New Business Landscape. Basingstoke: Macmillan Press.

Sheshinsky, E. (1967). Optimal Accumulation with Learning by Doing, Essays on the Theory of Optimal Economic Growth. Cambridge, MA: MIT Press.

Sjöholm, F. (1999). Technology Gap, Competition and Spillovers from Foreign Direct Investment: Evidence from Establishment Data.  Journal of Development Studies, 36(1), 53-73.

Solow, R. (1956). A Contribution to the Theory of Economic Growth. Quarterly Journal of Economics, 70, 65-94.

Swan, T. (1956). Economic Growth and Capital Accumulation. Economic Record, 32, 334-361.

United Nations. (2002). Final Outcome of the International Conference on Financing for Development. New York: United Nations, Retrieved from

United Nations Conference on Trade and Development. (2013). World Investment Report, Global Value Chains: Investment and Trade for Development. Geneva: United Nations, Retrieved from

Uzawa, H. (1965). Optimal Technical Change in an Aggregative Model of Economic Growth. International Economic Review, 6, 18-31.

Xu, B. (2000). Multinational Enterprises, Technology Diffusion and Host Country Productivity Growth. Journal of Development Economics, 62, 477-493.

Yao, S., & Wei, K. (2007). Economic Growth in the Presence of FDI: the Perspective of Newly Industrializing Economies. Journal of Comparative Economics, 35, 211–234.

Veblen, T. (1915). Imperial Germany and the Industrial Revolution. London: Macmillan.

Wijeweera, A., Renato, V., & Dollery, B. (2010). Economic Growth and FDI Inflows: A Stochastic Frontier Analysis. Journal of Developing Areas, 43, 143-158.

World Bank. (2010). Entering the 21st Century. World Development Report, Retrieved from

Zhang, K. (2007). Does Foreign Direct Investment Promote Economic Growth? Evidence from East Asia and Latin America. Contemporary Economic Policy, 19, 175-185.