FOREIGN DIRECT INVESTMENT - GROWTH NEXUS: A REVIEW ...
FOREIGN DIRECT INVESTMENT - GROWTH NEXUS: A REVIEW ...
FOREIGN DIRECT INVESTMENT - GROWTH NEXUS: A REVIEW ...
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International Journal of Applied Econometrics and Quantitative Studies Vol. 4-2 (2007)better economic environment. On the other hand potential drawbacksdo exist, including a deterioration of the balance of payments asprofits are repatriated and negative impacts on competition innational markets. At present, the consensus view seems to be thatthere is a positive association between FDI inflows and growthprovided receiving countries have reached a minimum level ofeducational, technological and/or infrastructure development.As mentioned by Busse and Groizard (2005), the enormousincrease in FDI flows across countries is one of the clearest signs ofthe globalisation of the world economy over the past 20 years. TotalFDI flows increased from some US $55 billion in 1985 to US $1,511billion before falling back to US $573 billion in 2003 (World Bank2005). Even as a share of Gross Domestic Product (GDP), we doobserve an enormous increase in the significance of FDI. In highincomecountries, this share increased from some 0.5 to 1.0 per centin the 1980s to more than 5 per cent in 2000 and then declined to 1.4per cent in 2003 (Figure 1). While the increase in FDI inflows wasless drastic in low- and middle-income countries, the percentage ofFDI in GDP remained at more than 2 per cent after the year 2000,indicating a slightly higher significance of FDI flows in developingcountries in the most recent period.Figure 1. FDI Inflows as a Share of GDP, 1970-2003Source: Busse and Groizard (2005)80