Do Governments Matter in Industrialization through FDI in Developing Countries?

(Pages 880-885)

Kevin H. Zhang*
Department of Economics, Illinois State University, Normal, IL 61790-4200, USA.


While theories predict a positive role of foreign direct investment (FDI) in industrialization (INDU) of developing countries, empirical evidence is mixed due partly to missing role of government in the FDI-INDU nexus. This study seeks to close the gap by investigating how governments may help domestic firms to gain from FDI. The paper focuses on (a) modelling and estimating the impact of governments on INDU through FDI; (b) constructing measures of governments and adopting recently developed indicators for INDU in estimations; and (c) working with a large sample of 98 developing countries over 2000-2020. We conclude that governments indeed matter in capturing benefits from FDI to INDU. The positive effects of host-governments tend to be larger in promoting industrial capacity than industrial share, and larger in boosting manufactured exports than manufacturing output in domestic markets.


Industrialization (INDU), Foreign direct investment (FDI), Governments, Absorptive capacity (AC), and Infrastructure.

JEL Code:

F02; F10; F21; and L60.

How to Cite:

Kevin H. Zhang. Do Governments Matter in Industrialization through FDI in Developing Countries?. [ref]: vol.20.2022. available at:

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