Inward FDI and growth: The role of macroeconomic and institutional environment

This paper contributes to the discussion on the role played by the absorptive capacities within host economies in their ability to grow and to exploit FDI efficiently. The outcomes for a sample of developing economies during the period 1976-2005 show differences associated to both the method of estimation (the system GMM vs OLS method) as well as the level of economic development. They also reveal the importance of controlling for those local capacities related to the macroeconomic and institutional environment. Thus, host country governments should develop a set of policies that are not only focused on inward FDI promotion but also on the improvement of their political and economic framework.