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The Role of FDI in Economic Development

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  • Kjetil Bjorvatn
  • Hans Jarle Kind
  • Hildegunn Kyvik Nordås

Abstract

This paper deals with two questions: First, what are the determinants of foreign direct investment (FDI)? Second, what is the role of FDI in economic development? In order to provide some answers to these questions, we draw upon the existing theoretical and empirical literature as well as insights derived from five country studies that we have conducted. Important location advantages include a stable social, political and economic environment, liberal trade policies, and geographical proximity to large and growing economies. On the host country effects of FDI, we conclude that while FDI is not necessary to achieve economic development, the entry of foreign firms may play an important role in adding technology and competition to the host economies. However, foreign entry may lead to a loss in market shares, and thereby a loss in profits, for local firms. This problem is likely to be more important if foreign entry takes place in markets shielded from the competitive pressures of international trade.

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Bibliographic Info

Article provided by Nordic Journal of Political Economy in its journal Nordic Journal of Political Economy.

Volume (Year): 28 (2002)
Issue (Month): ()
Pages: 109-126

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Handle: RePEc:noj:journl:v:28:y:2002:p:109-126

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  1. Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998. "How does foreign direct investment affect economic growth?1," Journal of International Economics, Elsevier, vol. 45(1), pages 115-135, June.
  2. Kokko, Ari, 1994. "Technology, market characteristics, and spillovers," Journal of Development Economics, Elsevier, vol. 43(2), pages 279-293, April.
  3. James R. Markusen, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-189, Spring.
  4. Magnus Blomstrom & Edward N. Wolff, 1989. "Multinational Corporations and Productivity Convergence in Mexico," NBER Working Papers 3141, National Bureau of Economic Research, Inc.
  5. Robert E. Lipsey, 2000. "Affiliates of U.S. and Japanese Multinationals in East Asian Production and Trade," NBER Chapters, in: The Role of Foreign Direct Investment in East Asian Economic Development, NBER-EASE Volume 9, pages 147-189 National Bureau of Economic Research, Inc.
  6. Blomström, Magnus & Sjöholm, Fredrik, 1998. "Technology Transfer and Spillovers: Does Local Participation with Multinationals Matter?," Working Paper Series in Economics and Finance 268, Stockholm School of Economics.
  7. Haddad, Mona & Harrison, Ann, 1993. "Are there positive spillovers from direct foreign investment? : Evidence from panel data for Morocco," Journal of Development Economics, Elsevier, vol. 42(1), pages 51-74, October.
  8. Cororaton, Caesar B. & Abdula, Rahimaisa, 1999. "Productivity of Philippine Manufacturing," Discussion Papers DP 1999-21, Philippine Institute for Development Studies.
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Cited by:
  1. Thandar Khine, 2008. "Foreign Direct Investment Relations between Myanmar and ASEAN," IDE Discussion Papers 149, Institute of Developing Economies, Japan External Trade Organization(JETRO).
  2. Busse, Matthias, 2002. "Do transnational corporations care about labour standards?," HWWA Discussion Papers 182, Hamburg Institute of International Economics (HWWA).

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