FDI, Technology Spillovers, Growth, and Income Inequality: A Selective Survey

The present paper, restricting its attention to the empirical economics literature, attempts to gauge current thinking on the question of whether FDI causes economic growth. Since technological spillovers are a key determinant of long run economic growth, the survey begins with the firm level evidence on technological spillovers of FDI on domestic firms. The macro FDI and growth literature is covered next. Finally, we examine the effect of FDI on income inequality and/or employment, skills, or jobs. In many contexts policies that exacerbate income inequality come under special scrutiny even if they are welfare enhancing. Our major finding is that FDI is generally associated with positive technological spillovers, economic growth, and increasing income inequality. For all three of these results, however, there are significant counter examples in the literature which must be respected.