Does Foreign Direct Investment Matter Anymore?

Abstract

Although Foreign Direct Investment (FDI) is widely believed to raise the receiving country’s economic growth, the statistical evidence to support that belief is weak. The macro-level data portray a mixed set of results. FDI neither raises nor lowers a country’s economic growth in the time range from the year when the FDI comes in to three years after it arrives. There are many possible explanations why the data show such a weak association between FDI and economic growth. These include reasons why the data do not show the benefit, even though the benefit exists; and reasons why FDI might not raise a country’s economic growth. In the data that we examined, increases in a country’s national stock market capitalization were more positively associated with the country’s subsequent economic growth.