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The Effects of Foreign Direct Investment on the Host Country Economic Growth - Theory and Empirical Evidence

Author

Listed:
  • Rui Moura

    () (Faculdade de Economia, Universidade do Porto)

  • Rosa Forte

    () (CEF.UP, Faculdade de Economia, Universidade do Porto)

Abstract

Foreign direct investment (FDI) influences the host country’s economic growth through the transfer of new technologies and know-how, formation of human resources, integration in global markets, increase of competition, and firms’ development and reorganization. Empirically, a variety of studies considers that FDI generate economic growth in the host country. However, there is also evidence that FDI is a source of negative effects. Given this ambiguity of results, the present paper makes a review of the existing theoretical and empirical literature on the subject, intending to shed light on the main explanations for the divergence of results in different studies. The main idea that stands out in this review is that the effects of FDI on economic growth are dependent on the existing or subsequently developed internal conditions of the host country (economic, political, social, cultural or other). Thus, the host countries authorities have a key role in creating the conditions that allow for the leverage of the positive effects or for the reduction of the negative effects of FDI on the host country’s economic growth.

Suggested Citation

  • Rui Moura & Rosa Forte, 2010. "The Effects of Foreign Direct Investment on the Host Country Economic Growth - Theory and Empirical Evidence," FEP Working Papers 390, Universidade do Porto, Faculdade de Economia do Porto.
  • Handle: RePEc:por:fepwps:390
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    References listed on IDEAS

    as
    1. de Mello, Luiz R, Jr, 1999. "Foreign Direct Investment-Led Growth: Evidence from Time Series and Panel Data," Oxford Economic Papers, Oxford University Press, vol. 51(1), pages 133-151, January.
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    Citations

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    Cited by:

    1. Yilmaz Bayar & Marius Dan Gavriletea, 2018. "Foreign Direct Investment Inflows and Financial Development in Central and Eastern European Union Countries: A Panel Cointegration and Causality," International Journal of Financial Studies, MDPI, Open Access Journal, vol. 6(2), pages 1-13, May.
    2. Hayat, Arshad, 2016. "Foreign Direct Investment, Institutional Framework and Economic Growth," MPRA Paper 74563, University Library of Munich, Germany.
    3. Efobi, Uchenna & Asongu, Simplice & Okafor, Chinelo & Tchamyou, Vanessa & Tanankem, Belmondo, 2016. "Diaspora Remittance Inflow, Financial Development and the Industrialisation of Africa," MPRA Paper 76121, University Library of Munich, Germany.
    4. Efobi, Uchenna & Asongu, Simplice & Okafor, Chinelo & Tchamyou, Vanessa & Tanankem, Belmondo, 2019. "Remittances, finance and industrialisation in Africa," Journal of Multinational Financial Management, Elsevier, vol. 49(C), pages 54-66.
    5. Georgeta Ilie, 2014. "Positive Versus Negative Effects of Foreign Direct Investments on Host Countries," Knowledge Horizons - Economics, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 6(4), pages 162-166, December.
    6. Czesława Pilarska, 2018. "Efekty zewnętrzne bezpośrednich inwestycji zagranicznych z perspektywy kraju goszczącego," Gospodarka Narodowa, Warsaw School of Economics, issue 4, pages 93-124.
    7. Muhammad Tariq Majeed, 2017. "Inequality, Fdi And Economic Development: Evidence From Developing Countries," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 62(05), pages 1039-1057, December.
    8. Polemis, Michael L. & Fafaliou, Irene, 2015. "Electricity regulation and FDIs spillovers in the OECD: A panel data econometric approach," The Journal of Economic Asymmetries, Elsevier, vol. 12(2), pages 110-123.
    9. Dan PIRLOGEANU & Mihaela PANAIT (TANASE), 2017. "The Impact Of Foreign Direct Investments On The Small And Medium Sized Enterprises In Romania," Revista Economica, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 69(1), pages 119-128, April.
    10. Hassan, Mai, 2017. "The impact of the shadow economy on aid and economic development nexus in Egypt," MPRA Paper 80990, University Library of Munich, Germany.
    11. Arshad Hayat, 2019. "Foreign direct investments, institutional quality, and economic growth," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 28(5), pages 561-579, July.
    12. Gohar S. Sedrakyan, 2018. "Can Tax Regulation and Administration Practices Impact Foreign Direct Investments?," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1812, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    13. repec:pal:easeco:v:45:y:2019:i:4:d:10.1057_s41302-019-00140-9 is not listed on IDEAS
    14. Mariachiara Barzotto & Giancarlo Corò & Ilaria Mariotti & Marco Mutinelli, 2019. "Ownership and workforce composition: a counterfactual analysis of foreign multinationals and Italian uni-national firms," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 46(4), pages 581-607, December.
    15. repec:jis:ejistu:y:2018:i:01:id:418 is not listed on IDEAS
    16. Yılmaz Akyüz, 2015. "Foreign Direct Investment, Investment Agreements, and Economic Development: Myths and Realities," Ekonomi-tek - International Economics Journal, Turkish Economic Association, vol. 4(1), pages 1-47, January.
    17. Kapingura Forget Mingiri & S.I Ikhide & A Tsegaye, 2016. "The Relationship between External Financial Flows and Economic Growth in the Southern African Development Community (SADC): The Role of Institutions," Journal of Economics and Behavioral Studies, AMH International, vol. 8(1), pages 87-103.
    18. repec:krk:eberjl:v:4:y:2016:i:4:p:189-212 is not listed on IDEAS

    More about this item

    Keywords

    Foreign Direct Investment; Economic Growth; Literature Survey;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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