Foreign Direct Investment and Economic Growth in Developing Countries

Abstract

Foreign Direct Investment (FDI) has emerged as a significant contributor to economic transformation in developing countries by providing financial resources, technological advancement, managerial expertise, and access to international markets. Developing economies often experience limitations in domestic capital formation, infrastructure development, and technological capabilities; therefore, foreign investment plays an important role in accelerating industrialization and improving productivity. This scholarly article examines the relationship between Foreign Direct Investment and economic growth in developing countries by analyzing the mechanisms through which FDI influences capital accumulation, employment generation, technology transfer, innovation, and institutional development. The study highlights that the benefits of FDI depend not only on investment volume but also on governance quality, human capital development, financial system efficiency, and economic policies. Effective utilization of foreign investment can support sustainable development, enhance competitiveness, and strengthen global economic integration. However, challenges such as dependency risks, profit repatriation, environmental concerns, and unequal distribution of benefits require careful policy management. The article concludes that developing countries should create investment-friendly environments while strengthening domestic capabilities to maximize the long-term advantages of FDI. Research literature shows that FDI contributes to growth through capital, knowledge, and technology channels, but outcomes vary according to sectoral composition and host-country conditions.