Abstract
Many developing countries have offered various financial and fiscal incentives to attract inflows of FDI. The reason behind these efforts is that it is believed that FDI promotes economic growth of host countries. However, the literature, both empirical and theoretical, about the impact of FDI on economic growth is less than unanimous. On the one hand, the literature has identified numerous ways in which foreign direct investment may promote growth. For instance, at a micro level, FDI can be a channel for firms of the host country to access advanced technologies (technology transfers) or advanced managerial processes (knowledge transfers)(see for instance Blomstrom et al.(2000)). Or FDI can facilitate the extraction, distribution and exports of products by improving the network of transport and communication. FDI can also beneficially affect the productive efficiency of domestic enterprises through the so-called productivity spill-overs (see Blomstrom and Kokko (1996)). FDI enables the host countries to participate in various networks such as sales and procurement networks of foreign investors. Besides these channels, at a more macro-economic level, foreign direct investment provides developing countries with the required capital and avoids the problems associated with alternative ways of raising funds in international markets and the need to cover current account deficits. However, some contributions to the literature, inclusive of some seminal papers such as Baran, 1957; Dos Santos, 1970; Chase-Dunn, 1975, suggest that FDI may have negative impact on the growth prospects of the recipient economy if they result in a substantial reverse flows