Are foreign companies a blessing or a curse for local development in Brazil? It depends on the home country and host region's institutions. (3rd March 2021)

• Record Type: Journal Article
• Authors: Polloni‐Silva, Eduardo; Moralles, Herick Fernando; Rebelatto, Daisy Aparecida do Nascimento; Hartmann, Dominik
• Is Part Of: Growth and change. Volume 52:Number 2(2021)
• Page Start: 933
• Page End: 962
• Publication Date: 2021-03-03
• Subjects: Regional planning -- Periodicals; 307.120973
• DOI: 10.1111/grow.12484
• Languages: English
• ISSNs: 0017-4815

Abstract

Abstract: Latin America is an important destination for foreign direct investment (FDI). The debate on whether FDI is beneficial or harmful to the region is ongoing. Our study investigates how institutions from the home country and the host region affect the FDI‐human development nexus in Brazil. Specifically, we employ a unique data set comprising 92 municipalities and companies from 52 countries. We use threshold regressions to scrutinize the heterogeneous effects of FDI on the municipalities' income, education, health, and productivity levels. Our results indicate that locations with a high concentration of companies from countries with well‐developed institutions tend to experience a more positive effect of FDI on local development than regions with a high concentration of companies from emerging economies with less developed institutions. This effect is nonlinear, though, and more significant in institutionally weak regions. Our findings suggest that the FDI‐human development nexus is neither always positive or negative. Instead, it varies depending on which human development aspect is being analyzed and on institutions. Finally, we discuss policy implications for Brazil and Latin America.