Foreign Direct Investment and Economic Growth: A Literature Review

Abstract

The borders between the countries have started to evaporate and international capital movements have increased significantly with globalization. Many developing countries have started to open their markets to international capitals and to apply reforms oriented to the removal of barriers for foreign investment in parallel to these developments. Foreign direct investments, which are alternative resources for the countries with undercapitalization and technological incompetence, have become the center of attention. Undoubtedly foreign direct investments have both positive and negative effects on the economy after they come to a country. For this reason, the main goal of the present study is to analyze studies and models about how these foreign direct investments made to countries affect economic growth. Even though the prevailing view is foreign direct investments would contribute to the economic growth in parallel to the increase of capital and productivity, this situation would vary in accordance with the economic structure and the quality of the investments. As a result of this research, it has been concluded that the quality of investment is the most important factor in the fact that foreign direct investments affect economic growth positively or negatively.