Abstract: The highly concentrated nature and significant size of foreign investors relative to other sources of capital at the disposition of host country governments can lead to influence over the policymaking process which generates or sustains policies that benefit the interest for foreign investors at the expense of broad-based economic. Such outcomes are, however, by no means a necessary result of foreign direct investment inflows. The benefits of technology transfer, job creation, capacity building and integration into the international economy are real as is the potential that foreign investors may promote rather than retard economic and social modernization. These benefits are, however, more likely to dominate and generate net benefits to an economy from foreign direct investment when that investment is diffuse across industries, home countries and firms than when the same magnitude of flows are more concentrated. The question is not whether the economic benefits of foreign direct investment trump the costs of dependency but how often. In an empirical analysis examining the impact of concentration of FDI on economic growth in countries with varying degrees of concentration of political power, I identify the contingent effect of FDI on growth based on the degree of concentration of economic and political power.

Download the paper