King's College London

For years, outward foreign direct investment – when companies establish operations abroad – has been viewed as a potential drain on domestic jobs and resources.

However, new research led by researchers at King’s College London paints a different picture.

A systematic review of 130 empirical studies finds that OFDI is predominantly beneficial for home countries.

The study, conducted by Dr Jan Knoerich and Dr Daniel Benson, from the School of Global Affairs, shows that 71 per cent of studies report positive effects, while only 12 per cent identify negative outcomes.

Dr Knoerich said: "Our review shows that outward investment is not a zero-sum game. In most cases, it strengthens the home economy through productivity gains, innovation and growth. This challenges the long-standing assumption that investing abroad inevitably harms domestic interests."

The study showed that many advanced and developing home economies have been beneficiaries of outward investment, with China a key beneficiary in the two decades since its multinational enterprises began to invest abroad.

The research highlights eight major home-country effects of OFDI:

• Productivity gains through economies of scale and knowledge accumulation.
• Innovation and technology transfer, as firms acquire know-how abroad and bring it back.
• Export growth, with overseas subsidiaries opening new markets.
• Industrial upgrading, as lower-value activities move offshore and higher-end production expands at home.
• Employment, which can rise when global expansion creates new roles, though results are mixed.
• Domestic investment, which often grows alongside foreign investment.
• Environmental impact, through technological improvements or offshoring of polluting activities.
• Economic growth, supported by the cumulative benefits of international expansion.

Positive effects were found to be strongest when investments target advanced economies, seek strategic assets such as technology, and when firms have high absorptive capacity.

The benefits often materialise over the long term, underscoring the need for patience in policy and business planning.

The study also examines how governments support OFDI through information services, financial incentives, tax relief and risk insurance.

Targeting these measures at strategic asset-seeking investments and sectors such as technology can amplify positive outcomes. Transparency around such measures remains limited, and the authors call for greater openness to benefit researchers, policymakers and host countries.

“OFDI is not simply about capital outflow – it is about building capabilities, accessing knowledge and positioning firms for global competition,” the authors conclude.

They also urge policymakers to move beyond inward investment obsession and design strategies that maximise home-country benefits while mitigating risks.

Dr Benson said: "Governments need to move beyond their inward investment obsession and recognise the strategic value of outward investment. With the right measures, OFDI can be a powerful tool for competitiveness and sustainable development at home."

The findings mark a significant step forward in understanding the role of OFDI in economic development and competitiveness.

"As globalisation evolves, this research provides vital insights for governments and businesses navigating the complexities of international investment," added Dr Knoerich.

 

Read more: Knoerich & Benson (2026) Home-country effects of outward foreign direct investment: A systematic review of empirical and policy evidence. International Business Review, Volume 35, Issue 1 https://www.sciencedirect.com/science/article/pii/S0969593125001428