Foreign Direct Investment and Economic Growth: A Literature Survey

Earlier foreign direct investment (FDI) was looked with great suspicion by many developing countries but now the dilemma has been removed and it is regarded as a catalyst for economic growth and important vehicle for transfer of technology from developed to developing countries. Several theoretical and empirical studies have been conducted to investigate whether economic growth is influenced by the FDI Inflows. This paper deals with review of literature since 1959, to study the relation between FDI and economic growth. In this literature survey, emphasis has been done to study the bi-directional relation between FDI and economic growth, impact of FDI on domestic investment (DI) and role of absorptive capacity to attract and optimally utilize the flow of FDI. The analysis of results highlights various determinants and impact ofFDI. This study also suggests whether and which country should adopt FDI-led growth or export-led growth. suspicion by many developing countries but now the dilemma wasremoved and it is regarded as a catalyst for The relationship between FDI and economic growth economic growth and important vehicle for transfer of has been a debatable topic because of contradictory technology from developed to developing countries. view of researchers and policy makers regarding the FDI refers to an investment in foreign country where positive and negative aspect of FDI and economic the investor retains control over the investment. This is growth. Various studies have been conducted to study a long term capital investment because this cannot be the nexus between FDI and economic growth under easily liquidated. It typically takes the form of starting a various circumstances but there is shortage of studies new venture or subsidiary, acquiring a stake in an relating to the review of literature focusing FDI and existing firm or starting a joint venture in the foreign economic growth relation to arrive at certain valuable country. FDI can fuel DI in the host countries, diffuse conclusion. However while reviewing literature I technology, enhance competition in the local market, found only one paper ofOzturk (2007)who worked on reduce saving and investment gap, increase the review of literature since 1986 and highlighted the employment opportunities, reduce poverty, increase positive role of FDI on economic growth. He suggested efficiency and productivity, increase export, facilitate strengthening certain deficient areas and promoting import, increase standard of living, create more FDI policy to attract FDI.Including the areas focused in competitive business environment, improves human his studies, this survey covers few more areas which capital formation, provide access to international have not been given importance in his studies like effect market for local products and create externalities and of corruption, sectoral growth, poverty and impact on knowledge spillovers and in this way it works as DI. In this paper various theoretical and empirical vehicle to build the idea gap between rich and poor literatures have been reviewed not only to study the country. FDI will certainly improve the integration of relation between FDI and economic growth but also one economy into the global economy and foster relation between FDI and DI and economic growth and growth and development. Due to positive and multiple FDI. This review of literature has covered the impact of FDI, it is believed that it will offset the literatures published since 1959 while earlier studies negative effects and helps in enhancement of economic covered the literatures published since 1986. This paper growth and development.Gorg & Greenaway (2004) also highlighted the various techniques used by the