The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Foreign Direct Investment

  • Bruce A. Blonigen
Reference work entry


Foreign direct investment (FDI) occurs when an individual or firm acquires controlling interest in productive assets of another country. We review the literature on FDI, which can be divided into two broad categories. The first is the inquiry into why multinational production occurs and the factors that determine the patterns of worldwide FDI. The second is the impact that FDI and multinational enterprises (MNEs) have on the parent and host countries, including economic growth, returns to factors of production, and externalities.


Agglomeration externalities Double taxation issue Efficiency wages Exchange rate volatility Factor endowments Firm, theory of Foreign direct investment General equilibrium model Greenfield foreign direct investment Horizontal foreign direct investment Information externalities International capital flows Intra-firm trade Knowledge-capital model of multinational enterprises Multinational enterprises (MNEs) Multinational firms Ownership-location-internalization’ (OLI) theory of multinational enterprises Partial equilibrium model of firm behaviour Portfolio investment Productivity spillovers Size of nations Tax competition Tax treaties Taxation of corporate profits Trade protection Transactions costs Vertical foreign direct investment Wage heterogeneity, sources of Wage spillovers 

JEL Classifications

F21 F23 
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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Bruce A. Blonigen
    • 1
  1. 1.