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

  • Ewe-Ghee Lim

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: 28
Date of creation: 01 Nov 2001
Date of revision:
Handle: RePEc:imf:imfwpa:01/175
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  28. Barry, F & Bradley, J, 1997. ""FDI and Trade : The Irish Host-Country Experience"," Papers 97/13, College Dublin, Department of Political Economy-.
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  38. 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.
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