Foreign Direct Investment - Growth Nexus : A Review of the Recent Literature

This paper reviews the literature dealing with the effects of FDI on Growth. Numerous empirical studies have been conducted to investigate whether growth is influenced by FDI. The overall evidence is best characterized as mixed as the results are regarding to the importance of labor costs, openness, investment climate, countries considered (developed vs developing) and fiscal incentives. However, free trade zones, trade regime, the human capital base in the host country, financial market regulations, banking system, infrastructure quality, tax incentives, market size, regional integration arrangements and economic/political stability are very important determinant for FDI that creates a positive impact on overall economic growth. In summary, consensus has been reached among academia and practitioners that FDI tends to have significant effect on economic growth through multiple channels such as capital formation, technology transfer and spillover, human capital (knowledge and skill) enhancement, and so on