Agustín Bénétrix

By: Agustín Bénétrix, Hayley Pallan and Ugo Panizza

Abstract: This paper reassesses the relationship between foreign direct investment (FDI) and economic growth in emerging and developing economies. Using cross-country data, it first shows that the relationship between FDI, growth, and local conditions such as financial depth and human capital is not stable over time: complementarities documented in studies based on data from the 1970s and 1980s largely disappear in more recent decades. It then builds a new dataset on sectoral FDI covering 112 emerging and developing economies over the period 1975‐2023 and documents substantial heterogeneity in the association between FDI and sectoral growth. FDI inflows are positively associated with growth in the primary sector, show no robust relationship in the secondary sector, and are negatively associated with growth in the tertiary sector. To interpret these patterns, we examine the role of global value chains (GVCs). We find that FDI is most strongly associated with growth in country‐sectors with low GVC participation, while this relationship weakens or disappears as GVC integration increases. Moreover, the growth effects of FDI depend critically on the type of GVC integration. Backward participation amplifies the positive growth effects of FDI in the primary sector but attenuates them in the secondary sector and worsens the negative effects in tertiary sector, whereas forward participation strengthens the association between FDI and growth in manufacturing. Taken together, the results suggest that the elusive aggregate relationship between FDI and growth reflects a structural transformation in how foreign investment is embedded in global production networks: in highly fragmented value chains, FDI can expand gross activity without generating commensurate domestic value-added growth.

This Policy Brief is based on Arrigoni, Bénétrix, McIndoe-Calder, Romelli (Open Economies Review, 2025). The views expressed are those of the authors and do not necessarily reflect those of the Banque de France, the European System of Central Banks, or the Economic and Social Research Institute.

This Policy Brief explores the link between household financial holdings and demographic characteristics through the lens of a novel dataset that combines granular asset-level information from the Securities Holdings Statistics (SHS) with household-level characteristics from the Household Finance and Consumption Survey (HFCS). By integrating these two rich yet underutilised datasets, our framework helps overcome the limited availability and accessibility of administrative microdata for cross-country comparisons within the euro area.

As an illustration of its potential, we analyse how portfolio risk and returns vary with education levels. We show that more educated households exhibit higher risk tolerance and achieve higher returns. Understanding household finances is relevant, given its implications for many economic decisions related to consumption, savings and labour supply, that condition macro-financial linkages. Therefore, the insights derived from this augmented dataset can support policymakers seeking to assess the consequences of household decisions and provide researchers with new tools to investigate the drivers of portfolio composition and performance at the household level.

Link