The Effect of Foreign Direct Investment on Economic Growth: A Comparative Study

Abstract

This review article is intended to assess the impact of FDI on economic growth by making a comparative analysis at both regional and sectoral levels. It emphasizes the importance of FDI have in the economic growth especially in the developing and emerging nations where we see it as capital, as a technology and a skill provider. The review insists that FDI impacts are heterogeneous and depend on the characteristics of the host countries including institutions, governance structures, and infrastructure. An analysis on the sectors show that manufacturing tends to generate higher economic returns from FDI than natural resources. The implications of the findings are made on the improvement of the institutional environment, on the development of the sectors of the economy, and on the human capital as the key to the optimization of the effects of FDI. Also, the article identifies directions for future research, including the analysis of the endogenous nature of FDI and the study of new trends in the FDI-economic growth relationship, which contributes to understanding this relationship’s complexity. In conclusion, this review enhances the literature on using FDI for sustainable economic development.