The Role of Foreign Direct Investment in Economic Development: Review

Abstract

Foreign direct investment (FDI) significantly influences the economic growth of developing and emerging economies by promoting capital inflows, technology transfer, job creation, and market expansion. It also stimulates industrial growth, infrastructure improvement, and global market integration. Key channels of FDI's impact include skill development, productivity gains from modern technologies, and expanded access to international markets. Countries with higher FDI inflows experience an average productivity increase of 10% in targeted industries. This study uses a mixed-methods approach, integrating quantitative analysis with qualitative case studies, to evaluate the dual effects of FDI. It highlights both opportunities and challenges, including potential risks such as dependency on foreign investors, environmental degradation, and economic vulnerabilities from capital flight. The study emphasizes the need for strategic alignment between FDI and national development objectives, with policy recommendations including incentivizing greenfield investments, promoting joint ventures, and implementing robust environmental regulations. This analysis reaffirms that FDI, when strategically leveraged, is a powerful engine for long-term economic development, especially in emerging and developing economies.

Keywords: Foreign direct investment, economic development, technology transfer, job creation, investment policies.