Role of Foreign Direct Investment in Economic Development of Low-Income Countries

Abstract

Purpose: The aim of the study was to assess the role of foreign direct investment in economic development of low-income countries.

Materials and Methods: This study adopted a desk methodology. A desk study research design is commonly known as secondary data collection. This is basically collecting data from existing resources preferably because of its low cost advantage as compared to a field research. Our current study looked into already published studies and reports as the data was easily accessed through online journals and libraries.

Findings: The study found that the investments stimulate economic growth by creating jobs, enhancing productivity, and improving infrastructure. Additionally, FDI can lead to increased exports and better integration into the global economy, helping these countries diversify their economic base and reduce reliance on a narrow range of commodities. However, the benefits of FDI are not automatic and depend on the host country's ability to implement effective policies, maintain political stability, and ensure that the investments are aligned with sustainable development goals. Challenges such as potential exploitation, environmental degradation, and uneven distribution of benefits must be managed to maximize the positive impacts of FDI on economic development.

Implications to Theory, Practice and Policy: The eclectic paradigm (OLI model), endogenous growth theory and dependency theory may be used to anchor future studies on assessing the role of foreign direct investment in economic development of low-income countries. Practitioners should focus on strengthening institutional frameworks to attract and sustain FDI. Policymakers should implement policies that promote inclusive growth, ensuring that the benefits of FDI reach all segments of the population. The study recommended investments in social infrastructure such as education and healthcare.