Transition to FDI Openness
FRB of Minneapolis Working Paper No. 671
Posted: 24 Jun 2009
Date Written: April 1, 2009
Empirical studies quantifying the benefits of increased foreign direct investment (FDI) have been unable to provide conclusive evidence of a positive impact on host country’s economic performance. I show that the lack of robust evidence is not inconsistent with theory, even if the eventual gains to FDI are large, if restrictions on FDI are lifted only gradually and part of FDI is intangible investment. Anticipation of future increases in FDI can result in large shifts in patterns of domestic investment and employment. Furthermore, since intangible investments are expensed, both gross domestic product (GDP) and gross national product (GNP) are low during periods of abnormally high FDI investment.
Keywords: Foreign Direct Investment, Multinationals, Capital Flows, Intangible Capital
JEL Classification: F21, F23, F41
Suggested Citation: Suggested Citation