Juma, Mary-Ann--Thesis

Other studies have emphasized the importance of host country characteristics in
allowing the absorption of FDI’s beneficial effects. Balasubramanyam et al (1996)
introduce the idea that FDI might have different effects on growth in countries pursuing
export-promoting versus import-substituting policies, and find that FDI has a higher
effect on growth in export-promoting countries. Blomstrom et al. (1992) find that FDI
has a significant effect on growth in higher-income developing countries, suggesting that
countries have to pass a certain income threshold in order to benefit from FDI.
Borensztein et al (1998) examine the effect of foreign direct investment on
economic growth in sixty-nine developing countries, finding that while FDI is positively
correlated with real per capita GDP growth, the relationship is modified when levels of
human capital are taken into account. In particular, the coefficient of FDI is larger when
countries have higher levels of human capital (measured as the average years of
secondary schooling for each country’s male population), leading the authors to conclude
that countries with more educated workforces are better equipped to take advantage of
the advanced technologies that might be gained as a result of FDI.
Given that these papers specify that FDI promotes growth only under very
specific conditions, other economists have considered the possibility that not all types of
FDI affect growth equally. Nunnenkamp and Spatz (2003) outline a few different
objectives for which multinational corporations invest outside of their home countries.
Resource-seeking objectives are evident when firms invest in countries with a key
resource (such as oil or cocoa); efficiency-seeking objectives are evident when firms
invest in countries with comparative advantages (lower labor costs, for example); and
market-seeking objectives are evident when firms invest in countries in order to access
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