at investments in governance infrastructure are subject to diminishing returns, so that the benefits in terms of inflows are most pronounced for smaller and developing countries.
Overall, Makki and Somwaru (2004) believe that FDI and trade together have a positive impact on economic growth but the size of such impact varies across countries depending on the level of human capital, domestic investment, infrastructure, macroeconomic stability, and trade policies. These researchers believe that a combination of FDI, trade, human capital, and domestic investment are important sources of economic growth for developing countries. They identify a strong positive interaction between FDI and trade in advancing growth and that FDI stimulates domestic investment.
Neumayer and De Soysa (2005) noted that FDI has many artifacts, including the development of labor market regulations that improve workers' income and quality of life. Hassan (2004) also suggests that FDI benefits developing countries by diversifying the sources of external finance, increasing
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