All the home-country effects listed under points 1-10 above and the subsequent economic opportunities can contribute to economic growth in the home country, and the impact on gross domestic product (GDP) is the final outcome of the other economic effects combined. Such home-country effects can contribute to all four expenditure components that make up GDP: consumption, investment, government expenditure (higher tax revenues) and export trade (UNESCAP 2020).
SDG 8.1 aims to sustain high levels of per capita economic growth in developing countries, and SDG 1 pledges to end all forms of poverty. By contributing to home country economic growth, OFDI can help generate and maintain strong economic growth in developing countries, thereby contributing to enhancements in per capita incomes and the reduction and elimination of poverty.
Key insights
- Most studies find a positive impact of OFDI on economic growth, with a few studies not able to detect an impact (UNESCAP 2020, Chen 2018, Ciesielska and Kołtuniak 2017, Chen and Zulkifli 2012, Herzer 2011a, 2010, 2008, Lee 2010).
- Governments should employ OFDI policies and HCMs as OFDI tends to have a positive impact on the home economy and its GDP growth.
Interactions
B9) Time since investment: The positive impact of OFDI on home-country economic growth tends to occur in the long term (Chen and Zulkifli 2012, Herzer 2011a, Lee 2010, Herzer 2008).
Available Research Findings
UNESCAP (2020, 24-33): OFDI made from 53 UNESCAP member states from 1960 to 2018 has had a positive effect on economic growth.
Ali et al. (2018): Both an increase and a decrease in Chinese OFDI undertaken between 1982 and 2015 has had a positive effect on economic growth in China.
Chen (2018): Chinese OFDI made from 30 Chinese provinces between 2004 and 2014, conducted by provincial firms and state-owned enterprises, had a positive impact on Chinese provincial economic growth.
Ciesielska and Kołtuniak (2017): Polish OFDI undertaken from 2004 to 2015 was constantly proceeded by economic growth.
Chen and Zulkifli (2012): There was a positive, long-run relationship between Malaysian OFDI from 1980 to 2010 and economic growth.
Herzer (2011a): OFDI has had a positive, long-run impact on domestic GDP in a sample of 43 developing countries from 1981 to 2008.
Herzer (2010): Two separate examinations of OFDI from 50 countries from 1980 to 2004 and from the United States respectively, find a positive impact on economic growth.
Lee (2010): There was long-run positive causality from Japanese OFDI between 1977 and 2006 to GDP per capita.
Wong (2010): There was no causality from Malaysian OFDI made between 1999 and 2008 to economic growth.
Source:
Herzer (2008): OFDI from 14 industrialised countries between 1971 and 2005 has had positive long-run impacts on home country GDP.