How does foreign direct investment promote economic growth?

Abstract

Although there is considerable evidence on the link between foreign direct investment (FDI) and economic growth
in developing countries, causal patterns of the two variables has not been investigated yet with a reliable procedure. Even
though, FDI is expected to boost host economic growth, it is shown that the extent to which FDI is growth-enhancing
appears to depend on country-specific characteristics. Particularly, FDI tends to be more likely to promote economic
growth when host countries adopt liberalized trade regime, improve education and thereby human capital conditions,
encourage export-oriented FDI, and maintain macroeconomic stability.