How might foreign direct investment (FDI) contribute to faster
economic growth? Looking for ways FDI is alleged to do this especially
in developing countries.

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Request for Question Clarification by livioflores-ga on 15 May 2005 10:46 PDT

Hi samchal!!

I am researching on this question and find that it is difficult to
give an unique general answer that works for all countries. There are
a plethora of articles that refers to particular cases (Arab, China,
Africa, Cyprus, etc.). What I need to know if you are looking for
these kind of information or if you need some kind of "unified theory"
about this (ie a list of generalities and things that are common in
almost developing countries). Also knowing the required level for the
answer will help (basic, advanced, etc.).
Any additional clue on what are you expecting will help us to give you
a better answer that fit your needings.

Thank you,
livioflores-ga

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Clarification of Question by samchal-ga on 15 May 2005 12:50 PDT

Hi livioflores-ga, 

Thanks for looking into this for me. 

I would like to have a list of the most common ways (and/or)
explanations FDI contributes to growth in developing countries on a
more advanced level. A list of maybe 6 or so ways would be sufficient
to get me started on the right path.
Thanks again, 
samchal-ga

Hi! Thanks for the question.

The ADB provided the following five general advantages.

1. ?Foreign firms bring superior technology?

2. ?Foreign investment increases competition in the host economy?

3. ?Foreign investment typically results in increased domestic investment?

4. ?Foreign investment gives advantages in terms of export market
access arising either from foreign firms? economies of scale in
marketing or from their ability to gain market access abroad?

5. ?Foreign investment can aid in bridging a host country?s foreign exchange gap?

?Impact of Foreign Direct Investment?
http://www.adb.org/Documents/Books/ADO/2004/part030200.asp 


The OECD also mentions other advantages of FDIs to developing countries.

6. ?FDI triggers technology spillovers, assists human capital
formation, contributes to international trade integration??

7. ??create a more competitive business environment and enhances
enterprise development??

8. ??FDI may help improve environmental and social conditions in the
host country by, for example, transferring ?cleaner? technologies and
leading to more socially responsible corporate policies.?

?Foreign Direct Investment for Development Maximising Benefits, Minimising Costs?
http://www.oecd.org/dataoecd/61/12/2763043.pdf 


The OECD presents two more benefits provided by FDIs.

9. ?MNEs (Multinational Enterprises) can contribute to the HRD of the
host developing country by providing training and supporting formal
education.?

10. ?MNEs contribute to technology transfers through numerous channels
of training spillovers, including vertical/horizontal linkages, labour
turnovers, and spin-offs.?

?HUMAN CAPITAL FORMATION AND FOREIGN DIRECT INVESTMENT
IN DEVELOPING COUNTRIES? by Koji Miyamoto
http://www.oecd.org/dataoecd/45/25/5888700.pdf 


Search terms used:  
benefits FDI developing countries

I hope these links would help you in your research. Before rating this
answer, please ask for a clarification if you have a question or if
you would need further information.
                 
Thanks for visiting us.                
                 
Regards,                 
Easterangel-ga                 
Google Answers Researcher

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Request for Answer Clarification by samchal-ga on 16 May 2005 01:28 PDT

easterangel-ga,
Your answer is helpful and good. I would just like a couple of more
resources/links so I can have a more well-rounded view of the subject.
The advantage of FDI is a contested theme so a few more references
would help defend the list you gave. If this is possible it would be
very helpful.

Thanks!

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Request for Answer Clarification by samchal-ga on 16 May 2005 01:40 PDT

Additionally, please try to keep the list limited to the way FDI
contributes to economic growth not just the possible benefits of FDI.
Thanks again.

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Clarification of Answer by easterangel-ga on 16 May 2005 09:49 PDT

Hi again!

Here are other articles providing evidences that agree to my original
answer and additional insights as well.


- "Profits generated by FDI contribute to corporate tax revenues in
the host country."

- "An additional benefit is that FDI is thought to be "bolted down and
cannot leave so easily at the first sign of trouble."

- "FDI appears to bring about a one-for-one increase in domestic investment;"

"How Beneficial Is Foreign Direct Investment for Developing Countries?"
http://www.imf.org/external/pubs/ft/fandd/2001/06/loungani.htm


- "Can contribute to growth, higher incomes, and reduced poverty"

- "Incentive structure leads to productive investment"

- "Less volatile than other capital flows"

- "May improve access to export markets"

- "Can provide additional demand for output of local producers"

- "Can provide lower-cost inputs for local suppliers"

- "Can improve the balance of payments and capital account"

"Backgrounder: Foreign Direct Investment"
http://www2.gsb.columbia.edu/ipd/j_fdi_bk.html


I hope these would be of help.

Thanks.