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Foreign direct investment and economic development: Opportunities and limitations from a developing country perspective

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  • Narula,Rajneesh
  • Portelli,Brian

    (MERIT)

Abstract

FDI has attracted increasing interest from developing countries because of the perceived benefits in terms of the injection of capital, technology and knowledge. This article analyses the main analytical underpinnings concerning the inter-relationships between FDI and host country economic development. We undertake a brief review of empirical studies on the issue of FDI-led growth process. We highlight a very basic point emerging from the literature, that FDI is not a sine qua non for development. FDI-led growth is not a process that occurs automatically in the host country, and this reflects the complex nature of the interrelationships between multinational enterprises (MNEs) and host country economic agents. A vast majority of the existing empirical studies indicate that FDI does not always make a positive contribution to either economic growth and factor productivity. This is often because host countries are not able to capture the bulk of benefits associated with FDI without a certain threshold level of absorptive capabilities.

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Bibliographic Info

Paper provided by Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT) in its series Research Memorandum with number 009.

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Date of creation: 2004
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Handle: RePEc:unm:umamer:2004009

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Keywords: international economics and trade ;

References

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  1. Holger Görg & Frances Ruane, 1998. "Linkages between Multinationals and Indigenous Firms: Evidence for the Electronics Sector in Ireland," Economics Technical Papers, Trinity College Dublin, Department of Economics 9813, Trinity College Dublin, Department of Economics.
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  3. Hiemenz, Ulrich & Agarwal, Jamuna Prasad & Langhammer, Rolf J. & Nunnenkamp, Peter & Spinanger, Dean, 1991. "The international competitiveness of developing countries for risk capital," Open Access Publications from Kiel Institute for the World Economy 747, Kiel Institute for the World Economy (IfW).
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  5. Ari Kokko & Mario Zejan & Ruben Tansini, 2001. "Trade regimes and spillover effects of FDI: Evidence from Uruguay," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 137(1), pages 124-149, March.
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  7. Reisen, Helmut & Soto, Marcelo, 2001. "Which Types of Capital Inflows Foster Developing-Country Growth?," International Finance, Wiley Blackwell, vol. 4(1), pages 1-14, Spring.
  8. Blomström, Magnus & Kokko, Ari, 1996. "Multinational Corporations and Spillovers," Working Paper Series in Economics and Finance 99, Stockholm School of Economics.
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  13. Portelli,Brian & Narula,Rajneesh, 2004. "Foreign direct investment through acquisitions and implications for technological upgrading: Case evidence from Tanzania," Research Memorandum, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT) 008, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
  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. Kokko, Ari, 1994. "Technology, market characteristics, and spillovers," Journal of Development Economics, Elsevier, vol. 43(2), pages 279-293, April.
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  17. Blomstrom, Magnus & Persson, Hakan, 1983. "Foreign investment and spillover efficiency in an underdeveloped economy: Evidence from the Mexican manufacturing industry," World Development, Elsevier, vol. 11(6), pages 493-501, June.
  18. Noorbakhsh, Farhad & Paloni, Alberto & Youssef, Ali, 2001. "Human Capital and FDI Inflows to Developing Countries: New Empirical Evidence," World Development, Elsevier, vol. 29(9), pages 1593-1610, September.
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  21. Abramovitz, Moses, 1990. "The Catch-Up Factor in Postwar Economic Growth," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 28(1), pages 1-18, January.
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