Is foreign direct investment good for health in low and middle income countries? An instrumental variable approach

This paper investigates the relationship between overall foreign direct investment (FDI) and population health in low and middle income countries (LMICs) using annual panel data from 85 LMICs between 1974 and 2012. When controlling for time trends, country fixed effects, correlation between repeated observations, relevant covariates, and endogeneity via a novel instrumental variable approach, we find FDI to have a beneficial effect to overall health, proxied by life expectancy, in LMICs. When investigating age-specific mortality rates, we find a stronger beneficial effect on adult mortality, yet no association with either infant or child mortality, suggesting the predominance of the FDI effect on overall health to be related to adult populations within LMICs. Notably, FDI effects on health remain undetected in all models which do not control for endogeneity. Exploring the effect of sector-specific FDI on health in LMICs, we provide preliminary evidence of a weak inverse association between secondary sector FDI and overall life expectancy, in line with previous findings.