Are foreign companies a blessing or a curse for local development in Brazil? It depends on the home country and host region's institutions

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.

Environmental Kuznets Curve and the Pollution-Halo/Haven Hypotheses: An Investigation in Brazilian Municipalities

“…Policymakers in other parts of Brazil and the world may access our policy recommendations. Second, due to the scarcity of data, we built a unique dataset with information about multinational companies located in Sao Paulo state using an export-oriented FDI measure similar to Moralles and Moreno [36] and Polloni-Silva et al [37]. Third, our findings reveal the impact of FDI on CO 2 emissions at a municipal level, therefore contributing to the international debate on this issue.…”

“…As the SISCOMEX system presents data on all exporting companies from all sectors, our FDI measure is arguably capable of including a considerable share of all foreign companies in the country. Additionally, a similar export-oriented proxy for FDI was already employed by Moralles and Moreno [36] and Polloni-Silva et al [37].…”

“…However, similar to the CO 2 -issue presented earlier, São Paulo state does not present a regional FDI database. De facto, there are no governmental statistics on FDI at the state or city-levels [36], and this lack of data virtually explains the current absence of Brazilian studies on FDI and its regional effects, except for Moralles and Moreno [36] and Polloni-Silva et al [37].…”

Productivity and foreign direct investment in the services sector: an econometric analysis

“…Journal of Production, Operations and Systems Management, Bauru, SP, Brazil,2023. Moralles, Rebelatto & Hartmann, 2021).…”

“…First, we assessed whether endogeneity would be a problem in the model. Thus, endogeneity tests were carried out using the lagged value of FDI (i.e., value in the previous year; t-1) using the values of the C-statistic (Baum, Schaffer, & Stillman, 2003) to test the significance of the result, following the steps presented by similar works (Polloni-Silva et al, 2021). These tests showed that endogeneity is not significant.…”