Abstract: Firebaugh’s refutation of Bornschier and Chase-Dunn much publicized contention that foreign investment inhibits economic growth focuses on two major points; foreign investment has a positive effect on economic growth, this positive effect is exceeded only by domestic investment and adding new data on the state coercive capacity, this study notes the following: Firebaugh’s claim that foreign investment has beneficial growth effect is sustained. His argument that domestic investment has a greater effect on economic growth than foreign investment is confirmed only when levels of state coercive capacity are not controlled for. For those at the low and middle levels of state capacity, the positive effect of foreign investment on economic growth is at least as strong as the positive effect of domestic investment on economic growth. In other words, highly coercive states are likely to favor domestic capital much more than foreign capital. This favoritism declines at low and middle levels of the state coercive capacity. The implications of these findings for elite legitimacy and development are outlined.