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Area Development

Foreign Direct Investment, Productivity, and Country Growth: An Overview

4-30-2009
The authors review the empirical literature that studies the relationship between foreign direct investment (FDI), productivity, and growth using aggregate data and focus on two questions: Is there evidence of a positive relationship between foreign direct investment and national growth? And does the output of the "multinational sectors" exhibit higher labor productivity?

They conclude that although the contributions multinational firms make toward economic growth of the host economies have been studied extensively, there is little consensus as to whether FDI is a boon or a bane for a country as a whole. Consequently, lacking unambiguous empirical evidence, it is difficult to formulate solid expectations on how proposed FDI policies will affect the entry of foreign firms into the host countries.

Study originally appeared in Federal Reserve Bank of St. Louis Review, March/April 2009, 91(2), pp. 61-78.

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