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

November 1, 2001

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Balance of payments, Economic sectors, Exports, Financial sector policy and analysis, Foreign corporations, Foreign direct investment, International trade, Labor costs, Spillovers, Tax incentives, Taxes

Keywords: Asia and Pacific, determinants, economic growth, efficiency spillover, Exports, factor cost, FDI inflow, FDI investor, FDI policy, Foreign corporations, foreign direct investment, Global, growth contribution, horizontal FDI, parent firm, production cost, Spillovers, Tax incentives, WP

Pages:
28
Volume:
2001
DOI:
https://doi.org/10.5089/9781451858754.001
Issue:
175
Series:
Working Paper No. 2001/175
Stock No:
WPIEA1752001
ISBN:
9781451858754
ISSN:
1018-5941

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