How does outward foreign direct investment contribute to economic development in less advanced home countries?

Abstract

In view of the rapid increase of outward foreign direct investment (OFDI) from emerging economies in recent years, this study examines how OFDI supports economic development in the world’s less advanced home countries. Drawing on theories of FDI, available literature of relevance and some recent evidence from emerging economies, this study finds that the objective of multinational enterprises to pursue assets and advantages abroad through OFDI can yield financial, intangible capability and tangible capacity returns. In the right circumstances, these returns generate important macroeconomic gains, mitigate some of the typical problems of economic development and provide broader benefits to societies. Despite some limitations, OFDI complements, sometimes in distinct ways, the development benefits many countries already realise through trade, migration and inward FDI. Emerging economies are best placed to benefit from the returns generated by OFDI.