The impact of FDI on the host country: the role or local capacities

Abstract

The increasing importance of Foreign Direct Investment (FDI) around the world requires a necessity to analyze its impact on the host country. Some economic agents think that FDI enhances growth only for taking place. And this leads many governments to encourage the attraction of FDI through measures such as tax incentives. But, after perform a brief description and a revision of the recent evolution of FDI and show many works which find a positive relation of FDI and growth, I will show the main controversial evidence that analyze some conditions which could influence the impact of FDI. After this review, I found that most of the authors that analyze this topic recommend host countries to improve these local conditions or absorptive capacities, i.e. human capital and technology (R&D) level, trade openness, infrastructure, macroeconomic environment and institutions, to take profit from FDI.