Business Intelligence

Foreign Direct Investment And Economic Growth

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Executive Summary

How does foreign direct investment triggered by foreign economic growth affect domestic economic activity? Estimates produced using foreign GDP growth rates for changes in foreign activity indicate that 10% greater foreign capital investment is associated with 2.2% greater domestic investment, and that 10% greater foreign employee compensation is associated with 4.0% greater domestic employee compensation. Changes in foreign and domestic sales, assets, and numbers of employees are likewise positively associated. There is considerable debate over the likely domestic effects of rapid foreign economic growth. While this issue is typically framed in the context of the effects of free trade, the globalization of production raises the issue of how multinational firms respond to changing patterns of economic growth, especially as production gravitates to large, growing markets.

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