Dependence on Foreign Investment and Economic Growth in the Third World

Estimates of the extent to which Third World countries have experienced slower rates of growth than those in the industrialized West since i960 indicate a weak relation between initial wealth and subsequent economic growth that follows an inverted U-shape pattern: while the lowest growth rates are found among the poorest countries of the Third World, the highest growth rates are found not in the industrialized West, but in the wealthiest Third World countries. Drawing on contending arguments associated with modernization and dependency perspectives, the relationship between foreign investment and growth within the Third World is examined. Results undermine the idea that foreign investment inhibits growth, suggesting instead that flows of foreign investment may facilitate growth, especially among the initially wealthier countries of the Third World.