Understanding the Relationship Between Foreign Direct Investment and Economic Growth; And Its Determinants: A Review of Literature and Evidence

Abstract

In the last few decades, there has been a lot of discussion in the economic literature about the link between FDI and economic growth; and its determinants. This paper reviews the literature dealing with the same. The findings presented on the particular topic show that the links between them are somehow conflicting and it is a bit difficult to draw a clear conclusion. Some of the scholars argue that FDI promotes technology transfer and spillovers; uplifts institutions, human capital, and infrastructures, and boosts market conditions. While other pessimists believe that FDI may lead to dependency on foreign capital, external vulnerabilities, and destructive competition of foreign affiliates with domestic firms. This paper also investigated on some empirical findings on the determinants of FDI and presented that tax rates, physical infrastructures, legal framework, low wage rate, trade barriers and government policies were major determinants of FDI inflow.