Professor Agustín Bénétrix's column is based on a recently published Trinity Working Paper, available to read here. The VOX EU column expands on this paper's findings.
"Existing evidence indicates that foreign direct investment promotes growth only when host economies have the human capital and deep financial markets to absorb spillovers. This column documents how the role of these conditions has weakened since the turn of the century. The authors also demonstrate how the growth effects of foreign direct investment vary dramatically across sectors, with a positive effect in the primary sector, no significant effect in manufacturing, and a negative effect in services. Finally, they show that the association between foreign investment and growth is strongest in country-sectors with low participation in global value chains, and that the type of participation matters too."