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Determinants of, and the Relation Between, Foreign Direct Investment and Growth: A Summary of the Recent Literature

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Author Info
Ewe-Ghee Lim
Abstract

This paper summarizes recent arguments/findings on two aspects of foreign direct investment (FDI): its correlation with economic growth and its determinants. The first part focuses on recent literature regarding positive spillovers from FDI while the second deals with the determinants of FDI. The paper finds that while substantial support exists for positive spillovers from FDI, there is no consensus on causality. On determinants, the paper finds that market size, infrastructure quality, political/economic stability, and free trade zones are important for FDI, while results are mixed regarding the importance of fiscal incentives, the business/investment climate, labor costs, and openness.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 01/175.

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Length: 30 pages
Date of creation: 26 Nov 2001
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Handle: RePEc:imf:imfwpa:01/175

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Keywords: Foreign investment ; Economic growth ;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Douglas P Woodward & Robert J Rolfe, 1993. "The Location of Export-Oriented Foreign Direct Investment in the Caribbean Basin," Journal of International Business Studies, Palgrave Macmillan Journals, vol. 24(1), pages 121-144, March. [Downloadable!] (restricted)
  2. Magnus Blomstrom & Ari Kokko & Mario Zejan, 1995. "Host Country Competition and Technology Transfer by Multinationals," NBER Working Papers 4131, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Root, Franklin R & Ahmed, Ahmed A, 1979. "Empirical Determinants of Manufacturing Direct Foreign Investment in Developing Countries," Economic Development and Cultural Change, University of Chicago Press, vol. 27(4), pages 751-67, July.
  4. Shatz, Howard J. & Venables, Anthony J., 2000. "The geography of international investment," Policy Research Working Paper Series 2338, The World Bank. [Downloadable!]
  5. Wheeler, David & Mody, Ashoka, 1992. "International investment location decisions : The case of U.S. firms," Journal of International Economics, Elsevier, vol. 33(1-2), pages 57-76, August. [Downloadable!] (restricted)
  6. Kokko, Ari, 1994. "Technology, market characteristics, and spillovers," Journal of Development Economics, Elsevier, vol. 43(2), pages 279-293, April. [Downloadable!] (restricted)
  7. Kokko, Ari & Blomstrom, Magnus, 1995. "Policies to encourage inflows of technology through foreign multinationals," World Development, Elsevier, vol. 23(3), pages 459-468, March. [Downloadable!] (restricted)
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  8. Ashoka Mody & Susmita Dasgupta & Sarbajit Sinha, 1999. "Japanese multinationals in Asia: Drivers and attractors," Oxford Development Studies, Taylor and Francis Journals, vol. 27(2), pages 149-164. [Downloadable!] (restricted)
  9. Balasubramanyam, V N & Salisu, M & Sapsford, David, 1996. "Foreign Direct Investment and Growth in EP and IS Countries," Economic Journal, Royal Economic Society, vol. 106(434), pages 92-105, January. [Downloadable!] (restricted)
  10. Dees, Stephane, 1998. " Foreign Direct Investment in China: Determinants and Effects," Economic Change and Restructuring, Springer, vol. 31(2-3), pages 175-94. [Downloadable!] (restricted)
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  11. Singh, Harinder & Kwang W. Jun, 1995. "Some new evidence on determinants of foreign direct investment in developing countries," Policy Research Working Paper Series 1531, The World Bank. [Downloadable!]
  12. Steven Globerman, 1979. "Foreign Direct Investment and `Spillover' Efficiency Benefits in Canadian Manufacturing Industries," Canadian Journal of Economics, Canadian Economics Association, vol. 12(1), pages 42-56, February. [Downloadable!] (restricted)
  13. Findlay, Ronald, 1978. "Relative Backwardness, Direct Foreign Investment, and the Transfer of Technology: A Simple Dynamic Model," The Quarterly Journal of Economics, MIT Press, vol. 92(1), pages 1-16, February. [Downloadable!] (restricted)
  14. Lall, Sanjaya, 1980. "Vertical Inter-Firm Linkages in LDCs: An Empirical Study," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 42(3), pages 203-26, August.
  15. Barry, Frank & Bradley, John, 1997. "FDI and Trade: The Irish Host-Country Experience," Economic Journal, Royal Economic Society, vol. 107(445), pages 1798-1811, November. [Downloadable!] (restricted)
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  16. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August. [Downloadable!] (restricted)
  17. Magnus Blomstrom & Robert E. Lipsey & Mario Zejan, 1994. "What Explains Developing Country Growth?," NBER Working Papers 4132, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  18. Schneider, Friedrich & Frey, Bruno S., 1985. "Economic and political determinants of foreign direct investment," World Development, Elsevier, vol. 13(2), pages 161-175, February. [Downloadable!] (restricted)
  19. Aitken, Brian & Hanson, Gordon H. & Harrison, Ann E., 1997. "Spillovers, foreign investment, and export behavior," Journal of International Economics, Elsevier, vol. 43(1-2), pages 103-132, August. [Downloadable!] (restricted)
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  20. Pain, Nigel, 1997. "Continental Drift: European Integration and the Location of U.K. Foreign Direct Investment," The Manchester School of Economic & Social Studies, Blackwell Publishing, vol. 65(0), pages 94-117, Supplemen.
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  21. L.R. de Mello Jr., 1996. "Foreign Direct Investment, International Knowledge Transfers, and Endogenous Growth: Time Series Evidence," Studies in Economics 9610, Department of Economics, University of Kent.
  22. Irving B. Kravis & Robert E. Lipsey, 1982. "The Location of Overseas Production and Production for Export by U.S. Multinational Firms," NBER Working Papers 0482, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  23. Billington, Nicholas, 1999. "The Location of Foreign Direct Investment: An Empirical Analysis," Applied Economics, Taylor and Francis Journals, vol. 31(1), pages 65-76, January. [Downloadable!] (restricted)
  24. Fung, K. C. & Iizaka, Hitomi & Parker, Stephen, 2002. "Determinants of U.S. and Japanese Direct Investment in China," Journal of Comparative Economics, Elsevier, vol. 30(3), pages 567-578, September. [Downloadable!] (restricted)
  25. Blomstrom, Magnus, 1986. "Foreign Investment and Productive Efficiency: The Case of Mexico," Journal of Industrial Economics, Blackwell Publishing, vol. 35(1), pages 97-110, September. [Downloadable!] (restricted)
  26. Blomström, Magnus & Globerman, Steve & Kokko, Ari, 2000. "The Determinants of Host Country Spillovers from Foreign Direct Investment," CEPR Discussion Papers 2350, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  27. Eduardo Borensztein & Jose De Gregorio & Jong-Wha Lee, 1995. "How Does Foreign Direct Investment Affect Economic Growth?," NBER Working Papers 5057, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  28. Feenstra, Robert C. & Hanson, Gordon H., 1997. "Foreign direct investment and relative wages: Evidence from Mexico's maquiladoras," Journal of International Economics, Elsevier, vol. 42(3-4), pages 371-393, May. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Damijan, Jože P. & Kostevc, Crt, 2007. "Knowledge Transfer, Innovation and Growth," Papers DYNREG06, Economic and Social Research Institute (ESRI). [Downloadable!]
  2. Huang, Yasheng & Di, Wenhua, 2004. "A Tale of Two Provinces: The Institutional Environment and Foreign Ownership in China," Working papers 4482-04, Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
  3. Bezuidenhout, Henri & Naude, Wim, 2008. "Foreign Direct Investment and Trade in the Southern African Development Community," Working Papers RP2008/88, World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  4. Kateřina Šmídková & Aleš Bulíř, 2005. "Would Fast Sailing Towards The Euro Be Smooth? What Fundamental Real Exchange Rates Tell Us," Prague Economic Papers, University of Economics, Prague, vol. 2005(4), pages 291-316. [Downloadable!] (restricted)
  5. Medvedev, Denis, 2006. "Beyond trade : the impact of preferential trade agreements on foreign direct investment inflows," Policy Research Working Paper Series 4065, The World Bank. [Downloadable!]
  6. Petr Kral, 2004. "Identification and Measurement of Relationships Concerning Inflow of FDI: The Case of the Czech Republic," Working Papers 2004/05, Czech National Bank, Research Department. [Downloadable!]
  7. Mottaleb, Khondoker Abdul, 2007. "Determinants of Foreign Direct Investment and Its Impact on Economic Growth in Developing Countries," MPRA Paper 9457, University Library of Munich, Germany. [Downloadable!]
  8. Halicioglu, Anita & Halicioglu, Ferda, 2006. "Foreign Direct Investment And Economic Growth: Some Evidence From Across The World," MPRA Paper 3563, University Library of Munich, Germany, revised 2007. [Downloadable!]
    Other versions:
  9. Yasheng Huang & Wenhua Di, 2004. "A Tale of Two Provinces: The Institutional Environment and Foreign Ownership in China," William Davidson Institute Working Papers Series 2004-667, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  10. Heather D. Gibson & Nicholas T. Tsaveas & Thomas Vlassopoulos, 2006. "Capital Flows, Capital Account Liberalisation and the Mediterranean Countries," Working Papers 33, Bank of Greece. [Downloadable!]
  11. Fathi Ali & Norbert Fiess & Ronald MacDonald, 2008. "Do Institutions Matter for Foreign Direct Investment?," Working Papers 2008_26, Department of Economics, University of Glasgow. [Downloadable!]
  12. Katerina Smidkova & Ales Bulir, 2004. "Would Fast Sailing Towards the Euro Be Smooth?: What Fundamental Real Exchange Rates Tell Us About Acceding Economies," Macroeconomics 0408002, EconWPA. [Downloadable!]
    Other versions:
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