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Growth and the Quality of Foreign Direct Investment

In: The Industrial Policy Revolution I

Author

Listed:
  • Laura Alfaro

    (Harvard Business School)

  • Andrew Charlton

    (London School of Economics)

Abstract

Policymakers and academics often maintain that foreign direct investment (FDI) can help in the development efforts of host countries. In addition to supplying capital, FDI can be a source of valuable technology and know-how and foster linkages with local firms that can help to jumpstart an economy.1 While academics tend to treat FDI as a homogenous capital flow, policy makers, on the other hand, seem to believe that some FDI projects are better than others. National policies toward foreign direct investment (FDI) seek to attract some types of FDI and regulate other types in a pattern which seems to reflect a belief among policymakers that FDI projects differ greatly in terms of the national benefits to be derived from them. UNCTAD’ World Investment Report 2006 for instance describes “quality FDI” as “the kind that would significantly increase employment, enhance skills and boost the competitiveness of local enterprises.” Policymakers from Dublin to Beijing have implemented complex FDI regimes with a view to influencing the nature of the FDI projects attracted to their shores. Sean Dorgan, Chief Executive of Ireland’s Industrial Development Agency, for example, claims that “the value of inward investment must now be judged on its nature and quality rather than in quantitative measures or job numbers alone.” Chinese officials have openly stated that the new challenge for the country is to attract more “high quality foreign direct investment.”3

Suggested Citation

  • Laura Alfaro & Andrew Charlton, 2013. "Growth and the Quality of Foreign Direct Investment," International Economic Association Series, in: Joseph E. Stiglitz & Justin Yifu Lin (ed.), The Industrial Policy Revolution I, chapter 3, pages 162-204, Palgrave Macmillan.
    • Handle: RePEc:pal:intecp:978-1-137-33517-3_12
    DOI: 10.1057/9781137335173_12
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    Citations

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    Cited by:

    1. Michael Effah Asamoah & Imhotep Paul Alagidede, 2023. "Foreign direct investment, real sector growth and financial development," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 626-643, January.
    2. Mariotti, Sergio & Marzano, Riccardo, 2021. "The effects of competition policy, regulatory quality and trust on inward FDI in host countries," International Business Review, Elsevier, vol. 30(6).
    3. García-Vega, María & Gupta, Apoorva & Kneller, Richard, 2023. "Is acquisition-FDI during an economic crisis detrimental for domestic innovation?," DICE Discussion Papers 403, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    4. Charis Vlados & Nikolaos Deniozos & Demosthenes Chatzinikolaou & Michail Demertzis, 2018. "Perceiving Competitiveness under the Restructuring Process of Globalization," International Journal of Business and Management, Canadian Center of Science and Education, vol. 13(8), pages 135-135, June.
    5. Rajneesh Narula & André Pineli, 2019. "Improving the developmental impact of multinational enterprises: policy and research challenges," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 46(1), pages 1-24, March.
    6. Pierre-Louis Vezina, 2017. "Resource discoveries and FDI bonanzas: An illustration from Mozambique," OxCarre Working Papers 199, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    7. Pan, Xiongfeng & Guo, Shucen & Han, Cuicui & Wang, Mengyang & Song, Jinbo & Liao, Xianchun, 2020. "Influence of FDI quality on energy efficiency in China based on seemingly unrelated regression method," Energy, Elsevier, vol. 192(C).
    8. Wu, Jinlong & Bian, Yuanchao & Bai, Junhong, 2023. "Global value chain upgrading effect of foreign capital withdrawal: Evidence from Chinese firms," Journal of Asian Economics, Elsevier, vol. 89(C).
    9. Silvia Dal Bianco & Nguyen Cong To Loan, 2017. "FDI Inflows, Price and Exchange Rate Volatility: New Empirical Evidence from Latin America," IJFS, MDPI, vol. 5(1), pages 1-17, February.
    10. Shima'a Hanafy & Marcus Marktanner, 2015. "Sectoral FDI, Absorptive Capacity and Economic Growth — Empirical Evidence from Egyptian Governorates," MAGKS Papers on Economics 201537, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    11. Sergio Mariotti, 2023. "Competition policy in the new wave of global protectionism. Prospects for preserving a fdi-friendly institutional environment," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 50(2), pages 227-241, June.
    12. Esteban Méndez & Diana Van Patten, 2022. "Multinationals, Monopsony, and Local Development: Evidence From the United Fruit Company," Econometrica, Econometric Society, vol. 90(6), pages 2685-2721, November.
    13. Nestorović Olgica, 2015. "Are Foreign Direct Investment Contribution to The Economic Growth of Transition?," Economic Themes, Sciendo, vol. 53(2), pages 267-277, June.
    14. Mucha-Leszko, Bogumiła, 2016. "Causes and Consequences of Deindustrialization in the Euro Area," Problems of World Agriculture / Problemy Rolnictwa Światowego, Warsaw University of Life Sciences, vol. 16(31), pages 1-13, December.
    15. Nuno Carlos Leitão & Matheus Koengkan & José Alberto Fuinhas, 2022. "The Role of Intra-Industry Trade, Foreign Direct Investment, and Renewable Energy on Portuguese Carbon Dioxide Emissions," Sustainability, MDPI, vol. 14(22), pages 1-21, November.
    16. Sjöholm, Fredrik, 2021. "Industrial Policy and Foreign Direct Investment," Working Paper Series 1400, Research Institute of Industrial Economics.

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