Foreign direct investment

This chapter focuses on foreign direct investment (FDI) from a global perspective. It reviews the theoretical perspectives and taxonomy of approaches to global FDI flows and presents some stylised facts on global FDI inflows and outflows. The chapter discusses the motives and drivers of global FDI inflows and the related empirical literature. In addition, global FDI incentives and policies are examined while concluding with some policy implications. Indeed, FDI can be a key driver of employment, technological progress, productivity improvements and the acceleration and sustenance of long-term economic growth. However, while FDI flows have been volatile over the past few decades, they have been dominated by the developed world. In spite of significant improvements in recent years, most developing countries are still suffer from persistent political instability and economic uncertainty, weak innovation, lack of technological readiness, poor business environment, poor regulatory framework, poor institutional frameworks, and weak FDI policies and incentives. To attract increased FDI to the developing economies, high priority should be given to improvements in governance systems and human capital development, among others.