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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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    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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