CAUSALITY BETWEEN FOREIGN-INVESTMENT AND SPILLOVER EFFICIENCY

While there is considerable evidence on the observed linkage between f oreign investment and technical efficiency of the developing countries , the question of causality between them has not been investigated. Th is paper re-examines the relationship between foreign direct investmen t and technical efficiency in Mexico, Brazil, Chile, Singapore and Zam bia using Granger causality tests. The results suggest that foreign di rect investment and labour productivity are causally independent varia bles. However, capital formation of the host country is found to exert 'causal' influence on foreign investment.