Does the worldwide shift of FDI from manufacturing to services accelerate economic growth---a GMM estimation study

This study is a GMM-estimation of the sectoral FDI effects on growth in host countries. After controlling for the traditional determinants of growth, I examine the manufacturing and service FDI effects on their own sector growth and their spillovers to the other sectors and the overall economy. I break down service sector FDI and inspect separately the growth effects of financial and non-financial service FDI on manufacturing, services, and the aggregate economy. I classify the data by regions, income distribution and relative sector shares (manufacturing-based and services-based economies) and conduct the sectoral analysis in each category. The most important findings are:;Aggregate growth is increased by manufacturing FDI in "Latin America and the Caribbean" (LAC), by financial FDI in "South and East Asia and Pacific" (SEAP), and by both in "Europe and Central Asia" (ECA). While manufacturing FDI is growth-enhancing at all income levels, the effect of financial FDI on growth increases and the effect of non-financial service FDI decreases with the income level. The growth effect of manufacturing FDI decreases with the share of manufacturing in the economies. Financial FDI boosts and non-financial FDI hurts growth in both manufacturing-based and services-based economies.;Manufacturing growth is increased by manufacturing FDI in all regions except for SEAP, where it increases due to financial FDI. The lower the income level, the more likely it is that manufacturing growth increases due to all three---manufacturing, financial and non-financial service FDI. In manufacturing-based economies, manufacturing FDI does not play part in the growth of manufacturing sector. In contrast, in services-based economies both manufacturing FDI and financial FDI boost growth in the manufacturing sector.;Services growth is increased by financial FDI in SEAP, and by manufacturing FDI and non-financial service FDI in LAC. The higher the income level, the higher is the impact of financial FDI and the lower is the effect of both manufacturing and non-financial service FDI. The higher the services share in the economy, the smaller is the spillover from manufacturing FDI and the higher is the effect of financial FDI on service growth.