The Determinants of Host Country Spillovers from Foreign Direct Investment

This paper reviews and synthesizes the available literature focusing on the determinants of efficiency spillovers from inward FDI. In order to do so, we outline a theoretical framework for understanding the underlying 'supply' and 'demand' forces determining the scope and magnitude of FDI spillovers to host economies. The findings suggest that the competitiveness of host country markets and the technical capability of local firms are among the most important determinants of spillover benefits. Both of these characteristics can be influenced by host country policy.