Financial-Sector FDI and Host Countries: New and Old Lessons
27 Pages Posted: 7 May 2004 Last revised: 14 Jul 2010
Date Written: April 2004
Many of the lessons from foreign direct investment (FDI) research on manufacturing and extractive resource industries are applicable to financial-sector FDI. This paper reviews the main findings and policy themes of FDI research, with a primary focus on the host country implications of FDI for emerging market economies. Evidence on technology transfers, productivity spillovers, wage effects, macroeconomic growth, and fiscal and tax concerns are emphasized. Throughout this review, I stress that parallel findings often arise independently in the separate research programs that focus on general and financial-sector FDI. I also emphasize that some important differences between the results of FDI into these sectors are apparent, especially with respect to their implications for local institution building and business cycles. These differences, more so than the similarities, should be the focus of concentrated research efforts.
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