The Evidence and Impact of Financial Globalization

Chapter 20

Foreign Direct Investment and Growth

L. Alfaro*,^† and M.S. Johnson^‡

^*Harvard Business School, Boston, MA, USA

^†NBER, Cambridge, MA, USA

^‡Boston University, Boston, MA, USA

Outline

Introduction

Overview of the Recent Empirical Literature

FDI, Growth, and Productivity

FDI, Capital, and Labor

Complementarities

Channels, Mechanisms, and Linkages

Concluding Comments

Glossary

References

Introduction

Policy makers and academics often argue that developing countries should attract foreign direct investment (FDI) as a means of generating higher economic growth by providing to domestic firms both a source of direct capital financing and valuable productivity externalities.¹ Anticipating such benefits, governments of developed and developing ...