Sumru ÖZ
Interactions Between Market-Driven Economic Integration and Growth: Foreign Direct Investment and Convergence
2005
(Supervisor: A. Suut Doğruel)

ABSTRACT

 Theoretical models of growth reveal that either exogenous or endogenous, technology is the main driving force behind long-run economic growth. Furthermore, in the endogenous growth framework, diffusion of technology is the basic mechanism of per capita income convergence among countries. This thesis study analyzes the interactions between growth and foreign direct investment as a form of market-driven economic integration, considering that the latter is an international technology diffusion channel. Although FDI appears to be an important channel in the diffusion of technology models of the theory, empirical evidence related to the effect of FDI on growth is ambiguous. This study presents evidence that per capita income convergence is the norm for FDI donor and recipient countries by using a different approach. The relatively high speed of convergence prevailed among countries linked by FDI justifies the technological spillovers accompanied by FDI and provides evidence that the diffusion of technology is a mechanism of per capita income convergence among countries. However, the technology transfer brought about by FDI; hence income convergence between FDI partners, is not straightforward and should be supported by enhancing the recipient countries’ absorptive capacity that consists of the own R&D prerequisite and the stock of and investment in human capital.