Open Access
Article
SciPap-2457
Beyond FDI: Structural and Macroeconomic Drivers of Total Factor Productivity in Middle-Income Economies
by Tran Hoang Vu
Abstract: This study examines the determinants of total factor productivity (TFP) and real GDP growth in 90 middle-income countries over 1990–2020, and contributes by separating the drivers of productivity from the drivers of growth within the same empirical framework to clarify the role of FDI. Using annual panel data, we estimate a TFP equation and a growth equation with country fixed effects and panel EGLS with cross-section weights, reporting White cross-section robust standard errors; this specification is appropriate for large cross-country panels because it controls for time-invariant national characteristics and addresses heteroskedasticity across countries. The results indicate that, conditional on country effects, TFP is linked mainly to domestic structure and macro-fiscal conditions: larger sectoral shares in agriculture and manufacturing and a higher import share are associated with lower TFP, while government consumption is positively related to TFP, and FDI and investment are not robust predictors of productivity. In contrast, GDP growth is positively associated with TFP, FDI, and investment, while inflation and government consumption are negatively related to growth and imports are growth-enhancing. The policy implication is that middle-income countries should prioritise productivity-raising structural upgrading, improve the efficiency and composition of public spending towards skills and infrastructure, and strengthen absorptive capacity so that FDI and trade translate into sustained productivity gains and higher long-run growth.
Keywords: GDP, Fdi, Middle-Income Countries, Macroeconomic, Total Factor Productivity.
JEL classification: B22, C58
