The impact of Foreign Direct Investment (FDI) on Economic Growth and Income Inequality in Developing Countries

Jinjia Li ()
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Jinjia Li: Havergal College

A chapter in Proceedings of the 2025 International Conference on Financial Innovation and Marketing Management (FIMM 2025), 2025, pp 452-458 from Springer

Abstract: Abstract This paper explores the impact of Foreign Direct Investment (FDI) on economic growth and income inequality in developing countries, with a focus on regions in Africa and Asia. Drawing on recent data and case studies, it examines how the volume, sectoral focus, and structure of FDI influence GDP growth, environmental outcomes, and income distribution. The analysis reveals that while FDI can be a powerful driver of development, its benefits are not guaranteed. They are contingent upon certain threshold conditions, such as adequate levels of human capital, institutional quality, and government spending. Countries with strong education systems, effective governance, and open trade policies are more likely to experience sustained economic growth and inclusive development from FDI. However, profit repatriation of FDI limits local reinvestment and undermines long-term economic resilience of developing countries, therefore exacerbating existing global inequality. Also, the environmental impacts of FDI are also mixed: while FDI in resource-rich countries often leads to higher CO2 emissions, investments in diversified economies can support greener outcomes. For developing countries, FDI should not be viewed solely as a financial transaction, but as a potential long-term partnership for sustainable and inclusive growth.

Keywords: Foreign Direct Investment; Economic Growth; Income Inequality; Developing Countries (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-874-5_53

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DOI: 10.2991/978-94-6463-874-5_53

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