Abstract
Foreign Direct Investment, FDI, is often, it is argued, one of the ways developing economies have to develop faster and catch up with developed economies, from which most of the FDI activities come from. There are complications, however, and FDI can have various unforeseen and even unfavorable consequences for the economy. As such, it is vitally important for policy makers to understand those limitations and potential effects of FDI, especially in the context of sustainable economic development: FDI is a double-edged sword that must be handled with care. The following paper offers an introduction to the literature of the subject with some thoughts of the author regarding some of the potential consequences of FDI. Special emphasis is on four aspects: FDI and economic growth, FDI and other capital flows, FDI and the balance of payments and FDI and financial stability.
Keywords: Foreign Direct Investment, Economic Growth, Capital Flows, Balance of Payments, Financial Stability
JEL codes: F21, F23, F63
