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To What Extent Can Foreign Direct Investment Help Achieve International Development Goals?

  • Peter Nunnenkamp

For FDI to help achieve the international development goal of halving absolute poverty, two conditions have to be met. First, poor developing countries need to be attractive to foreign investors. Second, the host-country environment in which foreign investors operate must be conducive to favourable FDI effects with regard to overall investment, economic spillovers and income growth. This paper argues that it is much more difficult to benefit from FDI than to attract FDI. Weak markets and institutions typically prevailing in poor countries tend to seriously constrain the growth-enhancing and povertyalleviating effects of FDI. The crux is that creating an environment in which FDI may deliver social returns will take considerable time exactly where development needs are most pressing.

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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1128.

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Length: 46 pages
Date of creation: Oct 2002
Date of revision:
Handle: RePEc:kie:kieliw:1128
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  1. Sebnem Kalemli-Ozcan & Laura Alfaro & Selin Sayek & Areendam Chanda, 2002. "FDI and Economic Growth: The Role of Local Financial Markets," Macroeconomics 0212007, EconWPA.
  2. Manuel R. AGOSIN & Ricardo MAYER, 2000. "Foreign Investment In Developing Countries, Does It Crowd In Domestic Investment?," UNCTAD Discussion Papers 146, United Nations Conference on Trade and Development.
  3. Lensink, R. & Morrissey, O., 2001. "Foreign direct investment: flows, volatility and growth in developing countries," Research Report 01E16, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  4. 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).
  5. 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.
  6. V N Balasubramanyam & M Salisu & David Sapsford., . "Foreign Direct Investment and Growth in EP and IS Countries," Working Papers ec18/94, Department of Economics, University of Lancaster.
  7. Collier, Paul & Dollar, David, 2001. "Can the World Cut Poverty in Half? How Policy Reform and Effective Aid Can Meet International Development Goals," World Development, Elsevier, vol. 29(11), pages 1787-1802, November.
  8. repec:dgr:rugsom:01e16 is not listed on IDEAS
  9. Magnus Blomstrom & Robert E. Lipsey & Mario Zejan, 1992. "What Explains Developing Country Growth?," NBER Working Papers 4132, National Bureau of Economic Research, Inc.
  10. Luiz de Mello, 1997. "Foreign direct investment in developing countries and growth: A selective survey," Journal of Development Studies, Taylor & Francis Journals, vol. 34(1), pages 1-34.
  11. Ewe-Ghee Lim, 2001. "Determinants of, and the Relation Between, Foreign Direct Investment and Growth; A Summary of the Recent Literature," IMF Working Papers 01/175, International Monetary Fund.
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