Columbia International Affairs Online: Policy Briefs

CIAO DATE: 01/2013

Inward foreign direct investment: Does it enable or constrain domestic technology entrepreneurship?

Saurav Pathak, André Laplume, Emanuel Xavier-Oliveira

December 2012

Columbia Center on Sustainable Investment


Whether or not foreign direct investment (FDI) is essential for domestic technological and economic development remains a contentious question. The controversy is illustrated by comparing the Celtic and Asian Tigers experiences from 1995 to 2000. Based on IMF and World Bank data in constant prices, Ireland and China averaged an annual growth rate of 8% in GDP per capita. However, FDI per capita grew at an average pace of 98% per year in Ireland, while in China it decreased by 1% -- absolute values averaged US$ 3,397 versus US$ 144, respectively. This suggests that, rather than a one-policy-fits-all approach, customized policies are more appropriate; and, if any generalization can be made, it should be based on a country’s stage of economic development.