How foreign investment affects host countries

Magnus Blomstrom and Ari Kokko

No 1745, Policy Research Working Paper Series from The World Bank

Abstract: Foreign direct investment may promote economic development by helping to improve productivity growth and exports in the multinationals'host countries, the authors conclude, after reviewing the empirical evidence. But the exact relationship between foreign multinational corporations and their host economies seems to vary between industries and countries. Multinational corporations mainly enter industries where barriers to entry and concentration are relatively high, and at first they increase the number of firms in the host country market. In the long run, they may contribute to a more concentrated market, although efficiency may improve, especially if protection does not guarantee an easy life for the multinational affiliate. However, most available evidence has to do with multinationals'entry into host countries'industries rather than with their presence -the dynamic aspects of multinationals'relationship to their competition in host country markets. Most evidence on multinationals'effects has to do with effects in industrial countries, and it is impossible to disregard the risk that the multinationals'entry into developing countries may replace local production and force local firms out of business, rather than force them to become more efficient.

Keywords: Environmental Economics&Policies; Labor Policies; ICT Policy and Strategies; General Technology; Economic Theory&Research; Foreign Direct Investment; Environmental Economics&Policies; ICT Policy and Strategies; Trade and Regional Integration; General Technology (search for similar items in EconPapers)
Date: 1997-03-31
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (112)

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