Foreign capital and efficiency in developing countries

This paper uses stochastic frontier methodology to analyse foreign direct investment, imported capital goods and human capital as channels for increased efficiency in less-developed countries. Empirical investigation reveals that developing countries differ with respect to the efficiency with which they use frontier technology. Foreign direct investment and human capital play a significant and quantitatively important role in explaining these differences. © 2008 The Authors. Journal compilation © 2008 Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research.