The FDI-growth nexus in Latin America: The role of source countries and local conditions

Foreign Direct Investment (FDI) has surged in Latin America (LA) since the mid 1990s. Today European FDI outranks North American FDI in South America. We in-vestigate the impact of European versus North American FDI on productivity growth analyzing more than 60 control variables. Country specific effects and parameter heterogeneity are incorporated in our estimation. We use Bayesian Model Averaging (BMA) to address model uncertainty and to select the best models and most robust pa-rameters. We find that a positive FDI-growth nexus in LA requires political stability, a functioning legal framework, and macroeconomic stability. Given these conditions, investments from both North America and Europe contribute to productivity growth