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Cover IMF Working Papers
Determinants of, and the Relation Between, Foreign Direct Investment and Growth: A Summary of the Recent Literature
Mr. 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.
Keywords:
WP; parent firm; production cost; efficiency spillover; FDI investor; economic growth; factor cost; FDI inflow; FDI policy; horizontal FDI; foreign direct investment; determinants; growth contribution; Foreign corporations; Spillovers; Tax incentives; Exports; Asia and Pacific; Global