ABSTRACT
The promotion of foreign direct investment (FDI) is considered to be an essential part of economic and development policies in many countries around the world, both developed and developing. Most countries have formulated policies and strategies to attract sizable investment from foreign corporations, presumably expecting that FDI will bring along with it complimentary assets such as technology, management skills and know-how together with improved foreign market access. As a consequence, it is expected that FDI will generate positive spillover effects on local industries, particularly in terms of job creation, technology transfer and upgrading and economic development. From the literature, there is some evidence that the inflows of FDI into the host countries proved to be the most resilient inflow compared with other types of inflows and has been widely recognized as a growth-enhancing factor in developing countries. In addition, FDI enables the recipient countries to achieve investment levels beyond their own domestic savings. However, based on a collection of studies on advantages and disadvantages of FDI, there still is no consensus resolution to the debate over the host-economy consequences of FDI. In other words, foreign investment could have both positive and negative impacts on the local economy. A number of studies show there is a direct effect of FDI on the host country’s economy; however, it is still not clear about the indirect or spillover effects of FDI. The literature provides mixed results which vary from country to country and also depend on the sample and model specifications used in the study.
