Borenszteina J. De Gregoriob, J-W. Leec (1998) ”How does foreign direct investment affect economic growth” the findings including 69 developing countries for the last two decades. The endogenous growth model used to test variable, in which the rate of technological progress is the main determinant of the long-term growth rate of income. The results recommend that FDI is a central vehicle for the relocation of technology, causative moderately more to growth than domestic investment. Yet, the higher productivity of FDI holds only when the host country has a minimum threshold stock of human capital.
This means when the country have good human capital the availability of benefited with FDI. So the countries who have low capacity of human capital remain the loser in FDI benefits. Also the finding show there is the need for developing country to establish and empower their people in order to upgrading in the current advanced market where technology have used everywhere. Thus, FDI contributes to economic growth only when a sufficient absorptive capability of the advanced technologies is available in the host economy. Moreover; empirical results indicate that FDI is more productive than local investment only when the host country has a minimum threshold stock of human capital.
The results are vigorous to a number of alternative stipulations, which control for the variables usually identified as the key elements of economic growth in cross-country regressions. This sympathy investigation along the lines of Levine and Renelt (1992) displays a robust relationship between economic growth, FDI and human capital.Conversely, for a large extent FDI may support the growth of domestic companies by complementarity in production or by increasing productivity through the spillover of innovative and advanced technology. Our outcomes are helpful of a crowding-in effect, that is, a one-dollar increase in the net inflow of FDI is related with an increase in entire investment in the home economy of more than one dollar, but do not appear to be very healthy.
Thus, it appears that the main channel through which FDI contributes to economic growth is by encouraging technological advancement, slightly than by increasing whole capital accumulation in the host economy.