published in: World Bank Research Observer, 2004, 19(2), 171-197
Governments the world over offer significant inducements to attract inward investment,
motivated by the expectation of spillover benefits to augment the primary benefits of a boost
to national income from new investment. This paper begins by reviewing possible sources of
FDI induced spillovers. It then provides a comprehensive evaluation of the empirical evidence
on productivity, wages and exports spillovers in developing, developed and transitional
economies. Although theory can identify a range of possible spillover channels, robust
empirical support for positive spillovers is, at best, mixed. The reasons for this are explored
and the paper concludes with a review of policy aspects.
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