Outward FDI, Capital Flows, and Economic Growth

Abstract

This paper examines the impacts of outward FDI on the home country's growth rate via the employment channel. In the overlapping generations framework, this paper shows that the impacts of FDI on the home country's growth are different in the short run and in the long run. Moreover, the relative technology level and the economic conditions of the host country are crucial in determining outward FDI and the home country's growth. The policies which would improve the home country's technology and direct FDI to the host countries with certain economic conditions would promote growth without restricting FDI. The paper suggests that by including the measurements to distinguish between the short-run and the long-run effects and identifying the host countries and their economic conditions, some existing inconsistent empirical results on the effects of outward FDI may be explained.

Keywords: outward FDI, economic growth, capital flows, employment, overlapping generations

JEL Classification: E20, F21, O16