The relationship between foreign direct investment and host countries: a literature review

Abstract

Foreign Direct Investments (FDI) constitute a key factor in economic growth and the development of nations. They provide multiple benefits for host countries, including technological transfers, integration into trade exchanges, infrastructure development, job creation, and more. However, recent studies have highlighted potential risks associated with FDI. Among these risks are the deterioration of the balance of payments, effects on national market competition, economic dependence, etc. Each of these aspects will be examined in this article by exploring the literature on the effects of FDI on host economies.
The literature dedicated to research on FDIs is vast and controversial. Some theoretical works argue that FDIs have a positive impact on national economies. Other more recent studies put forth arguments in favor of a negative influence. The divergences in the literature underline the need to delve deeper into research to better understand the effects of FDIs on economic development. This is the perspective that guides the present contribution.
Our objective is to review the multiple effects that FDIs can have on host economies and highlight the inherent nuances in these effects. This involves analyzing various aspects of FDIs. In the first instance, we will try to clarify the definitions, strategies, and forms associated with FDIs. In the second instance, we will provide an in-depth overview of the different dynamics of FDIs.
Overall, this article delves into a comprehensive analysis of the literature on FDIs, emphasizing the most relevant theoretical works to offer a better understanding of the complex and multifaceted role of these investments in economic development.

Keys words: Foreign direct investment, MNE, Host economy, FDI impact.
JEL Classification: F21 - F23 - O0
Paper type: Theoretical Research