Foreign Direct Investment and Growth; In Search of Spillover Channels from Foreign Direct Investment

The main question of interest in the following research paper is the effect of FDI to economic growth in the host countries. The motivation for writing the paper originates from the inability of the academia to establish a clear and straightforward view for the role of FDI for economic growth. In providing an adequate and sufficient analysis to the problem, several key steps are to implement. First, the paper provides a short descriptive overview of the main determinants for FDI. Second, the standard Solow growth model is presented aiming at clarify the main vehicles for economic growth. Third, a detailed analysis of the activities of the MNEs is included. In its nature, this is a multi-dimensional approach which focuses on the changes in productivity, labor and potential spillover effects originating from the MNEs’ activities in the host economies. From the findings in the paper, it can be concluded that the activities of the MNEs have a beneficial effect for fostering economic growth in the host countries. Evidence suggests that MNEs’ activities enhance growth through all potential channels- capital, labor and productivity. The existence of a number of spillover effects additionally confirms positive role of that MNEs have for economic growth in the host countries.