How Does Foreign Direct Investment Affect Economic Growth

We test the effect of foreign direct investment (FDI) on economic growth in a cross-country regression framework, utilizing data on FDI flows from industrial countries to 69 developing countries over the last two decades. Our results suggest that FDI is an important vehicle for the transfer of technology, contributing relatively more to growth than domestic investment. However, the higher productivity of FDI holds only when the host country has a minimum threshold stock of human capital. In addition, FDI has the effect of increasing total investment in the economy more than one for one, which suggests the predominance of complementarity effects with domestic firms.

Does foreign direct investment affect national saving both directly and indirectly through the rate of economic growth? It depends on which countries you're talking about. Pacific Basin countries appear to differ markedly from some other developing countries.

This study examines the link between FDI and development in six dynamic non-Member economies: Argentina, Brazil, Chile, Indonesia, Malaysia and the Philippines.

This volume examines the opportunities and challenges in Foreign Direct Investment (FDI) and trade, particularly service trade, for developing and emerging economies in a globalised world. Using comprehensive case studies from India, Pakistan, Bangladesh, Association of Southeast Asian Nations (ASEAN) and other South Asian Association for Regional Cooperation (SAARC) countries, it explores various channels through which trade and FDI affect the process of economic growth and development. In particular, it determines growth trajectories impelled by service trade (such as telecommunications, transport, finance and distribution), where developing countries are playing an increasingly significant role. It also discusses value chains and production networks in the backdrop of the financial crisis of 2008. Combining theoretical and empirical tools, rigorous methodology and latest data, this work will serve as an important resource for formulation of international trade and economic policies in developing countries. It will be of special interest to students, researchers and policy makers dealing with international trade and FDI, and those in economics, commerce, business & management and political science.

FDI remains the main driver of the expansion of the international production system. Forging linkages between foreign affiliates and domestic firms is a main challenge for policy-makers in developing countries in order to benefit from FDI as much as possible. The objective of FDI is to leverage the competitive capabilities of domestic enterprises. Fostering linkages is an important means of diffusing knowledge, information and skills from a foreign investor. In a technology and skill driven world, this can contribute to increasing the efficiency and growth potential of the host economy. Such benefits can be enhanced through appropriate policies. Therefore, governments can play an important role in creating the conditions that attract FDI.

During the 1990s, the governments of South Asian countries acted as ‘facilitators’ to attract FDI. As a result, the inflow of FDI increased. However, to become an attractive FDI destination as China, Singapore, or Brazil, South Asia has to improve the local conditions of doing business. This book, based on research that blends theory, empirical evidence, and policy, asks and attempts to answer a few core questions relevant to FDI policy in South Asian countries: Which major reforms have succeeded? What are the factors that influence FDI inflows? What has been the impact of FDI on macroeconomic performance? Which policy priorities/reforms needed to boost FDI are pending? These questions and answers should interest policy makers, academics, and all those interested in FDI in the South Asian region and in India, Pakistan, Bangladesh, Sri Lanka and Pakistan.