Call Us: US - +1 845 478 5244 | UK - +44 20 7193 7850 | AUS - +61 2 8005 4826

the annual percentage change in real GDP

The model was also estimated with an interactive dummy variable for the post1995 period, viz., D4 multiplied by the lagged FDI growth variable. By estimating this variable interactively with the FDI variable one can (crudely) assess whether the change in the composition of FDI towards operations in manufacturing and services has led to greater output ( labor productivity) growth after 1995. A finding that it has would be consistent with the notion that changes in the mix of FDI to higher valueadded operations has led to greater positive spillover effects. The coefficients of equation (5) represent the annual percentage change in real GDP associated with a respective percentage change in the variables in question. The dependent variable in this study was estimated as a labor productivity growth equation by subtracting the percentage change in the labor force from the percentage change in GDP.4 Defining the dependent variable in this manner reverses the expected sign of the labor variable because of diminishing returns to the labor input. The sign of β 1 is anticipated to be positive in the GDP growth rate formulation while, as indicated above, it is expected to be negative in the labor productivity growth specification. β 2 is expected to be positive, while the signs of β 3 and β 4 can be either positive or negative depending on whether changes in the stocks of foreign and public capital, respectively, complement or substitute for private capital formation