The Quarterly Review of Economics and Finance 47 (2007) 383–396 The contribution of foreign capital to U.S. productivity growth Ernie Goss a,* , John R. Wingender Jr. b , Megan Torau c a Creighton University, Omaha, NE 68178-0130, United States b Department of Economics & Finance, Creighton University, Omaha, NE 68178-0130, United States c Economics Department, Columbia University, New York, NY 10027, United States Received 13 April 2005; received in revised form 30 August 2006; accepted 6 September 2006 Available online 8 December 2006 Abstract U.S. Bureau of Labor Statistics productivity data show annual output growth per hour since 1995 roughly doubling the rate achieved over the preceding two decades. A rapid inflow of foreign investment paralleled the brisk productivity growth, suggesting a positive link between the growth of productivity and foreign capital. The goal of this study is to investigative this relationship and determine the extent to which foreign capital contributed to U.S. productivity growth during this period of vigorous productivity growth. Applying a Cobb–Douglas production function to data from 1988 to 1999, it is found that foreign capital accounted for almost 16% of overall U.S. productivity growth. Moreover, foreign capital was responsible for more than one-third of the manufacturing sector’s productivity growth between 1988 and 1994. More importantly, foreign capital contributed almost 16% of productivity growth between 1995 and 1999, significantly more than domestic capital’s contribution. © 2006 Board of Trustees of the University of Illinois. All rights reserved. JEL classification: F2; O4 Keywords: Foreign direct investment; Productivity growth 1. Introduction During the latter half of the 1990s, the U.S. experienced exceptional productivity gains, almost doubling the yearly growth rate achieved over the preceding two decades. Paralleling this growth * Corresponding author at: Department of Economics and Finance, Creighton University, Omaha, NE 68132, United States. Tel.: +1 402 280 4757; fax: +1 402 280 2172. E-mail addresses: ernieg@creighton.edu (E. Goss), jwings@creighton.edu (J.R. Wingender Jr.), mat2106@columbia.edu (M. Torau). 1062-9769/$ – see front matter © 2006 Board of Trustees of the University of Illinois. All rights reserved. doi:10.1016/j.qref.2006.09.001