FDI and growth
Rethinking foreign investment for development
Has FDI been beneficial to the economy of developing countries?
Authors:
P. K. Gallagher; L. Zarsky
Publisher:
post-autistic economics review, 2006
This paper critically explores literature and statistical evidence on the effect of Foreign Direct Investment (FDI) on the economic growth of developing countries. It argues that FDI is no “miracle drug” for economic development, environmentally sustainable or otherwise. Structuring development strategies and investment regimes around the assumption that it is a miracle drug may act, ironically, to undermine the positive contributions that FDI could potentially make to nurturing local capacities for sustained economic growth.
The paper examine examines recent statistical and case study evidence about the impacts of FDI in generating efficiency spillovers, promoting growth and improving environmental performance in developing countries. The studies paint an ambiguous picture: FDI has been found to have positive, neutral, or even negative impacts on all three counts. The poorer the country, the more likely is the FDI impact negative. The key variables appear to be the domestic institutional and policy context, on the one hand, and TNC practices on the other hand.
The article concludes that the benefits of FDI have been exaggerated, and that its centrality in development strategies have been misplaced. The paper also points out that it is more beneficial for development policies to turn their attention on promoting endogenous local capacities for sustainable development, rather than focusing on attracting FDI. [adapted from author]
