Chenyang Li

Supervisors: Prof Slavo Radosevic and Dr Randolph Luca Bruno

Present status: PhD candidate

Working title of thesis: Absorptive capacity and the effects of foreign direct investment on economic growth

Research: Foreign Direct Investments (FDI) in developing countries has been a key interest in the academic literature over the past 20 years. In the traditional framework, FDI is seen as a key supplement for capital and investment shortages. As Faras and Ghali (2009) said: "FDI inflows can be used to promote a balanced- sector economic growth and that by directing these investments to deficient sectors of the economy." However, more recent endogenous growth theory is based on the assumption that foreign companies have advanced technology, stronger management skills than the host country. In the process of cooperation with international firms, local firms may transfer or imitate these tangible and intangible assets from international companies (Romer 1986,1990; Grossman and Helpman 1991). Due to increasing the stock of knowledge and fostering technological growth, they effectively benefit from these competitive advantages, the productivity of domestic firms is expected to increase. This brings the external economy of scale to the host country. (Borensztein et al. 1998; De Mello 1999; Chang 2010). My research proposed focus is trying to find out the key factors of absorptive capability. This determines the impact of FDI on the host country's economic performance. Moreover, the purpose also includes capturing the indirect effect of FDI on growth, which is the technology spillover on local firms.