ABSTRACT
This chapter aims to develop a theoretical framework to analyse various impacts of foreign direct investment (FDI) on macro variables, such as productivity, employment, portfolio decision and economic growth, both in the short run and in the long run, for both the home and the host countries. From 1980 to 2004, the capital flows caused by FDI have counted for 2 per cent to 10 per cent of global fixed capital formation. Although the share 2 per cent to 10 per cent seems small, the actual size of fixed capital formation caused by FDI is large. Meanwhile, there are also studies finding positive and/or neutral effects of FDI on home employment. In terms of the effects of FDI on home productivity and growth, the results of empirical studies are also mixed. The mixed results of FDI on productivity and growth are not only for the home countries but also for the host countries.
