By analysing foreign direct investment FDI in a macroeconomic framework this study throws new light on various channels through which FDI influences saving investment growth and the balance of payments on current account The finding that FDI has differential impacts in a sample of five Southeast Asian and eleven other developing countries leads to several policy conclusions First FDI is attracted for privatization or debt equity swap programmes it may provide additional or alternative balance of payments support but will not accelerate capital formation or economic growth Second in the presence of financial and trade distortions FDI can remove from the host country more that it contributes In other words it can be immeserizing Third the most efficacious way of encouraging FDI is to implement policies that generally improve the investment climate Where domestically financed investment is booming FDI will seek to participate Finally maximum benefit from FDI can be achieved in open economies that are free of domestic distortions such as financial repression and trade controls

Foreign Direct Investment in Southeast Asia: Differential Impacts PDF

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