Thesis Statement:

East Asian countries have served as host countries for various multinational organizations. These organizations invest in the human capital and technology of  East Asian countries. As a result, the once underdeveloped countries can flourish into developed ones.

Research Question:

How does foreign direct investment promote economic growth in East Asia?

Introduction:

East Asia once represented one of the poorest regions in the world. However rapid growth, during the 2000s, helped advance the development of the region. Foreign direct investments (FDIs) have played a major role in East Asian economic growth. Dunning (1981) comprehensively defines FDIs as: “ the existence of multinational enterprises, a firm in one country with certain ownership advantages would open a subsidiary in another country with locational advantages and both advantages can best be captured by internalizing production via direct investment.” In essence, capital-abundant countries create an inflow of resources into capital-scarce countries.

Gholami, Tom Lee and Heshmati (2003) specify the following growth theories as promoters of economic growth, as it relates to FDIs: capital investment(classical model), technical progress (neoclassical models), accumulation of human capital and externalities (new growth theory). According to Kurtishi-Kastrati (2013), the classical model is an older one that indicated a one-way flow of capital from developed to underdeveloped countries. Contrarily, FDI is a two-way flow between developed and underdeveloped countries. Secondly, Mahembe and Odhiambo (2014) shared that the neoclassical growth model assumes that economic growth is produced by the accumulation of exogenous development factors. It has been shown that through this process, capital accumulation directly contributes to economic growth concerning the share of capital in the national production.

Lastly, the new growth model postulates that economic growth is driven by two main factors: the stock of human capital and technological changes (Romer, 1986, 1990 and 1994; Lucas, 1988). Nair-Reichert and Weinhold (2001:154) also argue that this growth model looks at the long-term and can lead to economic growth, driven by technology transfer, spillover and diffusion effects. Thus, it would then appear that the relationship between FDIs and economic growth is interdependent. This paper will seek to examine how these development resources, based on the theories presented, continue to promote economic growth in East Asia.