Foreign Direct Investment and Sustained Economic Growth: Literature Based Findings and Directions
Economic sustainability has always been focused on sustained growth. Economic sustainability refers to practices that foster economic growth without hampering environmental, social, and cultural aspects. Amongst practices, the current study uses foreign direct investment to check its role in attaining sustained economic development. This study is a synthesis of theoretical and empirical research papers to understand and conceptualize foreign direct investment contributions to sustained economic development and the reasons for the disproportionate benefits of foreign direct investment for recipient economies. Our analysis showed that foreign direct investment-driven economic development is heterogeneous across host countries; yet in nearly all cases, it stimulates economic activities via efficiency enhancement. However, these enhancement mechanisms relate to the local conditions which is one of the reasons why few countries benefit from foreign direct investment while others do not. For country-level inconsistencies in foreign direct investment-related benefits, academicians are advised to separately investigate social capacities and foreign direct investment mechanisms in a host country. These two elements are found to play an important role in determining the absorptive capacities of a host country. The research also suggested that the policy priorities of the host government determine potentially suitable economic sectors for foreign direct investment. Hence, one may look at the patterns of foreign direct investment flows to different economic sectors to see whether the host government prioritizes international R&D-related investments in the tech industry or prefers foreign ownership in strategic industries. The literature-based framework of the current study may serve as a guide for academia and researchers in the field.