Contribution of FDI to TFP: A Cross Country Panel Data Estimation

In this study, the factors affecting total factor productivity (TFP) are estimated with an emphasis on foreign direct investment (FDI) in Iran and 23 selected countries using the data over the period 1996-2006. TFP is computed using the Divisia index technique. The findings of this study show that the main determinants of TFP comprise FDI capital stock, R&D capital stock, university enrolment gross rate (as a proxy for human capital), the degree of openness (as the main sources of technological progress) and the ratio of actual output to potential output (as a measure of capacity utilization rate).. However, the magnitudes of the estimated parameters confirm that capacity utilization rate has the highest effect while FDI capital stock has the lowest effect on TFP.