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Appendix I: List and definition of variables
Appendix II: Tables
Appendix III: Figures
The authors are grateful to Florence Jaumotte and Nikola Spatafora (Jaumotte and Spatafora, 2007) for providing them with their database. See appendix I for the list of countries, definition of variables, and other details.
Alvaro et al., (2009) find evidence that factor accumulation (physical and human capital) does not seem to be the main channel through which countries benefit from FDI. Countries with well-developed financial markets gain significantly from FDI via TFP improvements.
We are not aware of such studies on developing countries. Papers on developing countries have mainly focused on analyzing the impact of increasing women’s capabilities and access to resources on growth and agricultural output (Udry et al., 1995; Seguino, 2008).
The PCA is a mathematical procedure that reduces the dimension of a dataset by synthesizing the information contained in a number of possibly correlated variables into a smaller or equal number of uncorrelated variables named principal components. Each component is interpreted using the contributions of variables to the component (Pearson, 1901 and Jolliffe, 2002).
The procedure is applied to 10 variables: the TFP growth, the levels of inflation, the ratio of FDI to GDP, and labor quality, the ratio of private credit to GDP, the share of agriculture and services to GDP, the ratio of trade flows to GDP, the degree of openness at the beginning of the period, female labor participation, and the degree of regulation in credit, labor, and business.
The Sargan test is not reported because studies show that when applied to a system GMM, the test is undersized, i.e., it rejects the null hypothesis of no over identifying restrictions more often than it should when H0 is true and can have a very low power, rejecting H0 rarely when it is false.
It should be noted that the inclusion of FDI to GDP drops the number of observations from 344 to 209, mainly because these data were not available for many countries during the first periods.
Mauritania and Libya, the two other Maghreb countries, are not included in the study because of lack of data.
A number of indicators are available to assess the quality of a country’s investment climate and good governance including the Global Competitiveness Report, the International Country Risk Guide, the World Bank Investment Climate Surveys, the World Bank Public Governance indicators, and the World Bank Doing Business Indicators. Notwithstanding their limitations, such indicators can be of some help to (a) track the position of the country vis-à-vis competitors and know how the country is seen in a global context; (b) understand the relative strengths and weaknesses of a country’s investment climate as seen by both local and foreign investors; and (c) assess the effectiveness of policy initiatives in improving the investment climate.
The variables reg_lab_ini, openstart1, and pcrdbgdp_levine are not in logarithm terms.