Foreign direct investment in developing countries and growth: A selective survey

Abstract

This article surveys the latest developments in the literature on the impact of inward foreign direct investment (FDI) on growth in developing countries. In general, FDI is thought of as a composite bundle of capital stocks, know‐how, and technology, and hence its impact on growth is expected to be manifold and vary a great deal between technologically advanced and developing countries. The ultimate impact of FDI on output growth in the recipient economy depends on the scope for efficiency spillovers to domestic firms, by which FDI leads to increasing returns in domestic production, and increases in the value‐added content of FDI‐related production.