FDI Flows to Low-Income Countries: Global Drivers and Growth Implications

Publication Date:

June 1, 2010

Electronic Access:

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Summary:

What accounts for variations in FDI flows from advanced to developing countries? How have FDI inflows explained cross-country growth experiences? In this paper we tackle both these questions empirically for a large sample of middle and low-income countries. Two key results emerge: (i) lower borrowing costs and positive real-side external factors were increasingly important drivers of FDI outflows to low-income countries in the pre-crisis period; (ii) economic fundamentals, the strength of economic reforms, and commitment to macroeconomic discipline are crucial determinants of the growth dividends of FDI. Our paper suggests that low-income countries can turn to domestic policy solutions to mitigate the adverse effects of a potential decline in FDI in the post-crisis world.

Series:

Working Paper No. 2010/132

Subject:

Emerging and frontier financial markets Financial sector development Foreign direct investment Plurilateral trade Real interest rates

English

Publication Date:

June 1, 2010

ISBN/ISSN:

9781455201150/1018-5941

Stock No:

WPIEA2010132

Pages:

38

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