FDI And Economic Growth

As globalization is spreading out,the intercourses of economic trade have become more and more frequent.International capital flow,especially foreign direct investment(FDI)is an important component of economic system in each country.Therefore,attracting FDI becomes a considerable target for governments.The research topic about “the relationship between FDI and economic growth” has always been an important research area in international economics.This dissertation investigates the relationship between FDI inflows and economic growth in host economies from the perspective of the development of local financial markets,and the conducts empirical analysis using available data.The conclusion in this dissertation will enrich the research about the relationship between FDI and economic growth,and produce a meaningful guidance on how to develop domestic financial markets and exploit FDI in countries with less-developed financial markets(mainly developing countries).This dissertation is focusing on the three following questions,“whether FDI can promote economic growth in host economies”,“how might financial markets function in the research of FDI-led growth”,and “how much are differences of FDI-led growth in developing and developed countries are determined by their differences of local financial markets”.In theoretical analysis,it is suggested that four main functional channels are responsible for FDI-led growth through the development of local financial markets.After that,from the perspective of local financial markets,a balanced economic growth model is developed,which is based on technology transfer by FDI.This dissertation concludes that well-developed financial markets in the host countries are potentially helpful for exploitation of FDI and economic growth,while less-developed financial markets in the host countries prevent exploitation of FDI and make the growth effects by FDI lower than expected result.Empirical evidence in this dissertation suggests that FDI plays an important role in contributing to economic growth in the host countries.However,the level of development of local financial markets is crucial for these positive effects to be realized.The result of this dissertation suggests that countries should weigh the cost of policies aimed at attracting FDI versus those that acquire FDI benefits by improving local financial markets.Countries with well-developed financial markets not only attract foreign companies but also allow host countries to maximize the benefits of foreign investments.