How Does Foreign Direct Investment Effects on Host Country’s Gdp (Economic Growth)?

5285 Words Apr 6th, 2012 22 Pages
The focus of this research is examining the affects of foreign direct investment on economic growth. Then the research reached this question: How Does Foreign Direct Investment Effects On Host Country’s GDP (Economic Growth)? Firstly, research starting with discussing the potential of FDI to affect host country’s economic growth and argues that two important objectes for FDI affects on economic growth, inflows of physical capital and technology spillovers, and according to research the technology spillovers have the stronger effect to enhance economic growth in the host country. Using cross section analysis with the range of ten years the empirical part of the paper reached a conclusion that FDI inflows improve economic growth
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For many years FDI has allowed lots of externalities such as displacement of general knowledge, level elevation in industrilization, important technology change in production and distribution, workforce development. Host country's competitiveness increase by FDI's services. Cause when a country get FDI inflow that means the country attract new capital so its productivity increase. If FDI would be productive then the capital that coming the country will be stable and long lasting. With the competition brought by FDI, in the host country's companies effected very efficially from this. They tend to become more productive and they would be more powerful againts abroad competitor. In a country when the companies has strong productivity, then the growth ratio in that country is higher than others. ( Baracaldo (2005)). With the FDI inflow of country, the employment generation will increase in that country. When the country's productivity increase, employment ratio will increase and its competitiveness increase, too. FDI contribute to the spillover of technology and improve knowledge. FDI make them efficient and with this way productivity increase(Ramírez (2006)). Also, FDI allow bring new goods and services in host country.
Table-1 Inward FDI stocks in high and low growth developing economies High growth | Inward FDI stock 2000, dollars | Low growth economies | Inward FDI stock per capita in 2002,dollars | China | … | Suudi Arabia | 1.159 | Korea | 918 |
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