Fdi and Economic Development: A Conceptual Framework

Abstract

Foreign direct investment (FDI) is an imperative element of the globalization and of the world economy. FDI is ascertained to be the key driver of employment generation, technological advancement, skill development, productivity improvements, and eventually economic growth. (Smith, 1976). This paper discusses the impact of FDI on economic growth and development with literature support. From the prior studies it’s been identified that most of the studies had been conducted in developing countries. Results ascertained that FDI is becoming an imperative for developing countries. Which are often based on the assumption that greater inflows of FDI. The literature witnessed that FDI remained the huge capital inflow in the developing nations for exceeding portfolio equity investment and private loans. FDI made great impact on host country’s economy, furthermore some studies affirmed the FDI impact on social and cultural environment of host countries. Many developing nations now consider FDI as an imperative source of development, but its economic impact is difficult to either measure or predict. However FDI impact have been confirmed by many studies. Empirical studies have proven significant contribution of FDI on human capital, capital formation, technological transfer, and international trade.