Foreign Direct Investment, Externalities and Economic Growth in Developing Countries: Some Empirical Explorations

Nagesh Kumar () and Jaya Prakash Pradhan

Chapter 3 in Multinationals and Foreign Investment in Economic Development, 2005, pp 42-84 from Palgrave Macmillan

Abstract: Abstract Foreign direct investment (FDI) emerged as the most important source of external resource flows to developing countries over the 1990s and has become a significant part of capital formation in those countries despite their share in the global distribution of FDI remaining small or even declining. FDI usually flows as a bundle of resources including, as well as capital, production technology, organizational and managerial skills, marketing know-how, and even market access through the marketing networks of multinational enterprises (MNEs) that undertake FDI. These skills tend to spill over to domestic enterprises in the host country. Therefore, FDI can be expected to contribute to growth (more than proportionately) compared to domestic investments in the host country. There is now a body of literature that has analysed the effect of FDI on growth in inter-country frameworks and another analysing knowledge spillovers to domestic enterprises from MNEs (see, for example, De Mello, 1997; Kumar and Siddharthan, 1997; Saggi, 2000, for recent reviews of the literature). However, the mixed findings reached by these studies on the role of FDI inflows in host country growth and on knowledge spillovers from MNEs suggest that these relationships are not unequivocal. A major reason for expecting a more favourable effect of FDI on growth is the externality of MNE entry for domestic firms.

Keywords: Foreign Direct Investment; Host Country; Capital Stock; Total Factor Productivity; Knowledge Spillover (search for similar items in EconPapers)
Date: 2005
References: Add references at CitEc
Citations: View citations in EconPapers (12)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:intecp:978-0-230-52295-4_3

Ordering information: This item can be ordered from
http://www.palgrave.com/9780230522954

DOI: 10.1057/9780230522954_3

Access Statistics for this chapter

More chapters in International Economic Association Series from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().