ABSTRACT
This chapter aims to redress the limited attention paid to foreign direct investment (FDI) inflows and their growth effects in small economies. It provides the principal determinants of growth in small economies with reference to their key characteristics, the determinants of FDI inflows and the principal types of FDI. The chapter assesses the extent to which small economies are able to attract inflows of FDI given their salient characteristics. It addresses a population size threshold of 5 million which is at variance with standard international institutional definitions and many studies but facilitates the inclusion of the relatively abundant body of empirical research on the effects of FDI in Ireland. The chapter also provides a summary survey of the principal findings of the limited number of cross-country empirical studies analysing the determinants of inflows of FDI to small economies. It examines the higher wages in foreign affiliates raise wages in the domestic sector by suggesting possible crowding-out in the labour market.
