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Foreign Direct Investment is considered as a driver of economic growth and development for developing countries which often lack the technology or capital to promote sustained economic growth and development. Mostly, FDI is considered as one of the major drivers of globalization as it continuously raises with the high growth rates before the financial crisis hit the world economy.

The way through which FDI promotes economic growth and development to the countries is contentious because there is no definitive evidence and lags in supporting the literature. Even though there is no empirical evidence in representing the impact of FDI on the countries there are some theoretical explanations from which one can easily analyse the impacts of FDI on developed and developing countries. According to Bora, B. (2002, p.168), “FDI flows were increasing rapidly much more quickly than international trade flows, which in turn were increasing faster than world GDP”.

Laura Alfaro (2003) says that FDI offers great advantages to host countries because many of the academics and policy makers argue that there exists a most important positive effect on the development of host countries. FDI not only acts as the source of the valuable technology but also helps the countries in developing the linkages with the local firms that indirectly helps the country in raising the economy.

Due to these reasons, most of the developing and industrialized countries offer incentive for encouraging the FDI in their economies. The environmental impacts of foreign direct investment may be positive, negative or neutral based on the institutional and industrial context. Gorg and Greenwood (2002) comes under a conclusion that the effect due to FDI is negative by reviewing the information from the foreign-owned to domestically owned firms. But Lipsey (2002) supports the positive benefits in preferring FDI. FDI flows attained a new record level right from the year 1990 to 2000. Then, from the year 2001 the growth in the investment failed and the later years it saw a steady and steep decline in global FDI flows.

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Figure: Shows trends in global FDI flows during the year 1991 to 2003 (FDI, 2007, p.7).

FDI affects the economic growth of the country in various aspects like it raises the formation of human capital, provides a facility to transfer the technology between the host countries and also stimulates the domestic investment. The relationship between the impact of FDI and economic growth can be easily analyzed with the help of production function and also with the other variables that affect economic growth such as domestic, trade, labour and capital (Falki, N. 2009).

Production function was done based on the endogenous growth. According to Kumar, N. (1998, p.112), “Direct investment was thought of mainly as a flow of capital, possibly replacing local capital or possibly representing marginal additions to the host country’s capital stock, followed by the necessity of financing dividends and interest, and possibly repatriation of capital”. Some of 本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。