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The Effects Of Foreign Direct Investment On The Host Country'S Economic Growth: Theory And Empirical Evidence

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  • ROSA FORTE

    (CEF.UP (CEF.UP — Center for Economics and Finance at University of Porto is financially supported by FCT (Fundação para a Ciência e a Tecnologia).); Faculdade de Economia, Universidade do Porto, Rua Dr. Roberto Frias, 4200 Porto, Portugal)

  • RUI MOURA

    (Faculdade de Economia, Universidade do Porto, Rua Dr. Roberto Frias, 4200 Porto, Portugal)

Abstract

Foreign direct investment (FDI) influences host country's economic growth through several channels. Empirically, a variety of studies considers that FDI generate economic growth but others conclude that FDI is a source of negative effects. By reviewing existing theoretical and empirical literature, we intend to shed light on the main explanations for the mixed results. The main conclusion is that the effects of FDI on economic growth depend on the domestic conditions of the host country (e.g., human capital, economic and technological conditions, degree of openness of its economy). Thus, the host countries governments have a key role in creating the conditions that allow for the leverage of the positive effects or for the reduction of the negative effects of FDI on the host country's economic growth.

Suggested Citation

  • Rosa Forte & Rui Moura, 2013. "The Effects Of Foreign Direct Investment On The Host Country'S Economic Growth: Theory And Empirical Evidence," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 58(03), pages 1-28.
    • Handle: RePEc:wsi:serxxx:v:58:y:2013:i:03:n:s0217590813500173
    DOI: 10.1142/S0217590813500173
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    References listed on IDEAS

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    1. de Mello, Luiz R, Jr, 1999. "Foreign Direct Investment-Led Growth: Evidence from Time Series and Panel Data," Oxford Economic Papers, Oxford University Press, vol. 51(1), pages 133-151, January.
    2. Theodore H. Moran & Edward M. Graham & Magnus Blomstrom, 2005. "Does Foreign Direct Investment Promote Development?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 3810.
    3. Mr. Ewe-Ghee Lim, 2001. "Determinants of, and the Relation Between, Foreign Direct Investment and Growth: A Summary of the Recent Literature," IMF Working Papers 2001/175, International Monetary Fund.
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    More about this item

    Keywords

    Foreign direct investment; economic growth; literature survey; F21; O40;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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