Foreign Direct Investment and Economic Growth in LDCs: Some Further Evidence

Abstract

The phenomenon of foreign direct investment (FDI) has generated a large and still growing literature. Particular interest in the last decade (no doubt encouraged by the development of the so-called ‘new’ theory of economic growth) has been directed to the role played by FDI in determining the pace of economic growth in less-developed countries (LDCs), and it this topic that forms the subject matter of this chapter. Our motivation in writing this chapter is twofold. First, while the relationship between FDI and growth has been intensely debated in the literature, the precise nature of the relationship and the preconditions required for FDI to promote growth and the mechanisms through which it does so remain largely unexplored. Second, recent developments in growth theory provide a convenient framework within which to analyse the relationship between FDI and growth. Indeed, many of the growth-promoting factors, such as human capital and externalities, have long been recognized to be the main ingredients of FDI.KeywordsHuman CapitalForeign Direct InvestmentGross Domestic ProductReal WageImport SubstitutionThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.