FDI Flows to Low-Income Countries: Global Drivers and Growth Implications

39 Pages Posted: 4 Jun 2010

See all articles by Era Dabla-Norris

Era Dabla-Norris

International Monetary Fund (IMF)

Jiro Honda

International Monetary Fund (IMF) - African Department

Amina Lahreche

International Monetary Fund (IMF)

Genevieve Verdier

International Monetary Fund (IMF) - IMF Institute

Date Written: June 2010

Abstract

What accounts for variations in FDI flows from advanced to developing countries? How have FDI inflows explained cross-country growth experiences? In this paper we tackle both these questions empirically for a large sample of middle and low-income countries. Two key results emerge: (i) lower borrowing costs and positive real-side external factors were increasingly important drivers of FDI outflows to low-income countries in the pre-crisis period; (ii) economic fundamentals, the strength of economic reforms, and commitment to macroeconomic discipline are crucial determinants of the growth dividends of FDI. Our paper suggests that low-income countries can turn to domestic policy solutions to mitigate the adverse effects of a potential decline in FDI in the post-crisis world.

Keywords: Business cycles, Economic growth, Cross country analysis, Foreign direct investment, Global Financial Crisis 2008-2009, Low-income developing countries

Suggested Citation

Dabla-Norris, Era and Honda, Jiro and Lahreche, Amina and Verdier, Genevieve, FDI Flows to Low-Income Countries: Global Drivers and Growth Implications (June 2010). IMF Working Paper No. 10/132, Available at SSRN: https://ssrn.com/abstract=1620251

Era Dabla-Norris (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Jiro Honda

International Monetary Fund (IMF) - African Department ( email )

1700 19th Street, NW
Washington, DC 20431
United States

Amina Lahreche

International Monetary Fund (IMF) ( email )

Genevieve Verdier

International Monetary Fund (IMF) - IMF Institute ( email )

700 19 th Street NW
Washington, DC 20431
United States

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