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FDI and Economic Growth in Developing Countries

FDI and Economic Growth in Developing Countries I. STRONG BELIEFS-WEAK EVIDENCE Developing and newly industrializing countries (DCs) are strongly advised, especially after recent financial and currency crises in Asia and Latin America, to rely primarily on foreign direct investment (FDI) to supplement national savings by capital inflows and promote economic development. FDI is expected to provide a stronger stimulus to income growth in the host countries than other types of capital inflows, even by such former critics of multinational enterprises as the United Nations Conference on Trade and Development (UNCTAD). This is particularly so for the following two reasons: - In contrast to foreign lenders and portfolio investors, foreign direct investors typically have a longer-term perspective when engaging in a host country. Hence, FDI inflows are less volatile and easier to sustain at times of crisis. - Positive growth effects of FDI are considered most likely, as FDI provides for more than just capital. In addition, FDI offers access to internationally available technologies and management know-how and may render it easier to penetrate world markets. These favourable features of FDI are largely undisputed in the economics profession and among policymakers in DCs. However, the growth effects of FDI in developing host countries have not been http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of World Investment and Trade Brill

FDI and Economic Growth in Developing Countries

Journal of World Investment and Trade , Volume 3 (4): 19 – Jan 1, 2002

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Publisher
Brill
Copyright
Copyright © Koninklijke Brill NV, Leiden, The Netherlands
ISSN
1660-7112
eISSN
2211-9000
DOI
10.1163/221190002X00409
Publisher site
See Article on Publisher Site

Abstract

I. STRONG BELIEFS-WEAK EVIDENCE Developing and newly industrializing countries (DCs) are strongly advised, especially after recent financial and currency crises in Asia and Latin America, to rely primarily on foreign direct investment (FDI) to supplement national savings by capital inflows and promote economic development. FDI is expected to provide a stronger stimulus to income growth in the host countries than other types of capital inflows, even by such former critics of multinational enterprises as the United Nations Conference on Trade and Development (UNCTAD). This is particularly so for the following two reasons: - In contrast to foreign lenders and portfolio investors, foreign direct investors typically have a longer-term perspective when engaging in a host country. Hence, FDI inflows are less volatile and easier to sustain at times of crisis. - Positive growth effects of FDI are considered most likely, as FDI provides for more than just capital. In addition, FDI offers access to internationally available technologies and management know-how and may render it easier to penetrate world markets. These favourable features of FDI are largely undisputed in the economics profession and among policymakers in DCs. However, the growth effects of FDI in developing host countries have not been

Journal

Journal of World Investment and TradeBrill

Published: Jan 1, 2002

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