Foreign Direct Investment Absorptive Capacity Theory

Abstract

By reviewing the existing literature and empirical investigation, we build a socalled Photosynthesis model which argues that a recipient developing country only achieves benefits from FDI once they have sufficient absorptive capacity related to human capital resource, absorptive capacity of domestic firm, financial systems, physical infrastructure, technological, and institutional development. Some policies that improve host country absorptive capacities are recommended. Key words: FDI absorptive capacity, spillovers, conversation analysis, photosynthesis