How Foreign Investment Affects Host Countries
45 Pages Posted: 20 Apr 2016
Date Written: December 1996
Abstract
Foreign direct investment may promote economic development by helping to improve productivity growth and exports in the multinationals' host countries. But the exact nature of the relationship between foreign multinational corporations and their host economies seems to vary between industries and countries. Foreign direct investment may promote economic development by helping to improve productivity growth and exports in the multinationals' host countries, conclude Blomstrom and Kokko, after reviewing the empirical evidence. But the exact relationship between foreign multinational corporations and their host economies seems to vary between industries and countries.
Multinational corporations mainly enter industries where barriers to entry and concentration are relatively high, and at first they increase the number of firms in the host country market. In the long run, they may contribute to a more concentrated market, although efficiency may improve, especially if protection does not guarantee an easy life for the multinational affiliate. However, most available evidence has to do with multinationals' entry into host countries' industries rather than with their presence - the dynamic aspects of multinationals' relationship to their competition in host country markets. Most evidence on multinationals' effects has to do with effects in industrial countries, and it is impossible to disregard the risk that the multinationals` entry into developing countries may replace local production and force local firms out of business, rather than force them to become more efficient.
This paper - a product of the International Trade Division, International Economics Department - is part of a larger effort in the department to study regionalism and development.
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Wages and Foreign Ownership: A Comparative Study of Mexico, Venezuela and the United States
By Brian Aitken, Ann E. Harrison, ...
-
Does Inward Foreign Direct Investment Boost the Productivity of Domestic Firms?
By Jonathan Haskel, Sonia C. Pereira, ...
-
Does Inward Foreign Direct Investment Boost the Productivity of Domestic Firms?
By Jonathan Haskel, Sonia C. Pereira, ...
-
Does Inward Foreign Direct Investment Boost the Productivity of Domestic Firms?
By Jonathan Haskel, Sonia C. Pereira, ...
-
Much Ado About Nothing? Do Domestic Firms Really Benefit from Foreign Direct Investment?
By Holger Görg and David Greenaway
-
Much Ado About Nothing? Do Domestic Firms Really Benefit from Foreign Investment?
By Holger Görg and David Greenaway
-
Foreign Direct Investment as a Catalyst for Industrial Development
-
Foreign Investment and Productivity Growth in Czech Enterprises
By Bernard Hoekman and Simeon Djankov
-
Technology Transfer and Spillovers? Does Local Participation with Multinationals Matter?
By Magnus Blomstrom and Fredrik Sjoholm