Foreign direct investment (FDI) has long been regarded as a dependable driver of economic growth, often credited with creating jobs, boosting productivity, and transferring new technologies into host economies. For decades, policymakers and economists have treated it as a key mechanism for development and competitiveness in an increasingly globalised world. Yet new research suggests that this widely accepted view may be overly simplistic. Rather than delivering consistent and predictable benefits, FDI appears to operate in far more complex and uncertain ways, challenging the assumption that it can reliably serve as a universal engine of growth.

A recent study conducted by academics at the University of East London finds that FDI does not consistently generate the positive outcomes often associated with it. The research shows that its impact varies significantly depending on a range of factors, including the motivations behind investment, the economic and institutional conditions of the host country, and the specific characteristics of the industry involved. In some contexts, foreign investment can stimulate innovation and economic expansion. In others, however, it may displace local firms, widen income inequality, or contribute to long-term economic dependency. These findings suggest that FDI cannot be treated as a one-size-fits-all solution.

Drawing on more than six decades of academic literature, the study highlights the uneven and context-dependent nature of foreign investment outcomes. It underscores that simply increasing the volume of FDI is not sufficient to ensure positive results. Instead, the effectiveness of such investment hinges on alignment—between investor intent, local economic conditions, and sectoral dynamics. Where this alignment exists, FDI can enhance growth and productivity. Where it does not, the benefits may be limited or even counterproductive. This perspective calls into question longstanding economic assumptions that have tended to view FDI as broadly beneficial regardless of context.

The research also points to limitations in existing theoretical frameworks used to understand FDI. Many of these theories were developed in the context of advanced economies investing abroad and may not adequately reflect the realities of today’s global investment landscape. In particular, they struggle to explain the rising role of firms from emerging economies, which increasingly invest overseas not only to leverage existing advantages but also to acquire new capabilities and strengthen their global competitiveness. This shift complicates traditional interpretations and suggests that prevailing models may need to be revisited or expanded.

According to Kirk Chang, Professor at the Royal Docks School of Business and Law, foreign direct investment has often been oversimplified in both policy and academic discourse. He argues that it has been treated as a kind of economic cure-all, despite evidence that its success depends heavily on contextual alignment. Without a clear fit between investor motives, local conditions, and industry needs, outcomes can be uncertain and sometimes disappointing. Co-author Susan Akinwalere further emphasises that policymakers and business leaders must move beyond assumptions and focus on how well each investment aligns with national priorities, sectoral requirements, and long-term development goals.

More information: Susan Akinwalere et al, What Can Make ‘Foreign Direct Investment’ Work? Investors’ Motivation, Country Context and Industry Context All Play Their Roles, Journal of Industry Competition and Trade. DOI: 10.1007/s10842-026-00463-2

Journal information: Journal of Industry Competition and Trade Provided by University of East London