IMPACT OF FDI ON ECONOMIC GROWTH: AN OVERVIEW OF THE MAIN THEORIES OF FDI AND EMPIRICAL RESEARCH

Abstract

After the Second World War the Foreign Direct Investment (FDI) has gained a significant role in the international economy. The paper explains the theoretical and empirical literature on FDI, it further identifies the main trends in FDI theory and highlight how these theories were developed, the motivations that led to the requirement for new approaches to enrich economic theory of FDI. Furthermore, it provides a list of theoretical determinants of FDI as well the impact of FDI on economic growth and international trade. Moreover, the theoretical studies on FDI have led to a better understanding of the economic mechanism and the behavior of economic agents, both at micro and macro level allowing the opening of new areas of study in economic theory. In addition using the Eclectic Paradigm we identify factors that motivate foreign companies to invest abroad relatively than export or outsource production to national firms. Finally we cannot say that there is one commonly accepted theory, nevertheless every new one attaches some new basics and disapproval to the previous ones.