Foreign Direct Investment Affects Economic Growth
Foreign Direct Investment affects economic growthAn important distinction we need to note is the effect of FDI on macroeconomy and microeconomy separately. There are studies which show that FDI has a positive effect on a host country’s macroeconomic growth but a negative effect on microeconomic growth (Hermes & Lensink, 2003). Another important thing to note is the rate at which FDI affects economic growth and what factors contribute to this rate. These factors could be anything from human capital provided by the host country, technology advancement and the level at which it was shared between etc. There are 2 types of FDI, horizontal and vertical (“Foreign Direct Investment (Brownfield, Greenfield): Types of FDI”, 2019). When a company merges with another company in a foreign country to acquire some market share it is called horizontal FDI. When a company merges, acquires or gets a part of the company to become part of the supply chain it is called vertical FDI. In both cases, the flow of investment helps in the economic growth in the foreign country.ReferencesHermes, N., & Lensink, R. (2003). Foreign direct investment, financial development and economic growth. The Journal of Development Studies, 40(1), 142-163.
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