Foreign Direct Investment ( Fdi )

As well as the direct impact on employment and wider economic benefits of FDI as follows:

The benefits brought by FDI to China are apparent. Economy is influenced by FDI in a number of ways. FDI involves transfer knowledge in the host country, which will create an increase on the existing stock of knowledge through labor training, the transfer of skills, and the transferring of new managerial and organizational experience. Also, it can help local corporations to access to advanced technology by capital accumulation in host countries (Mello, 1999 and Mello, 1997). Furthermore, FDI may allow China to develop in technology and knowledge which are not readily available locally, as a consequent increase productivity growth through the economy (Jose, 2003).

One of the important factors of the growth in China and Brazil as BRIC countries is Foreign Direct Investment (FDI). There are several factors that contribute to attract FDI including market size, institutional and regulatory quality, trade openness, infrastructure quality, economic and political stability, and labor quality and cost (The World Bank, 2011). China is still the most attracting for FDI among any other BRIC members (UNCTAD, 2012). Huge amount of market, low inflation and stability of their government are might be the factors that attracted the FDI in China. According to the ministry of China, “Investment from the United States decreased by 26.1 percent in 2011 to $3 billion, while that from the European Union decreased by 3.65 percent to $6.3 billion” so, China’s FDI was hit by the global financial crisis in the EU and US. However, The most attracted FDI in Brazil is in market size sector with the fact that Brazil will be the host of

Figure 1.7 The structure of the dissertation Figure2.2 Modes of entering foreign markets Table 2.32 Factors affecting the FDI decision Figure 2.33 Types of FDI 12 15 19 22

Peter J. Buckley, Jeremy Clegg and Chengqi Wang (April 2006), “Inward FDI and host country productivity: evidence from China’s electronics industry”, Transnational Corporations, 15 (1), pp. 13-37 [Online] Available at: http://unctad.org/en/docs/iteiit20061a2_en.pdf (Accessed on 13 November 2012)

The effects can be negative or positive. According to the theory of Hill (2003), FDI can affect host countries on resources-transfer effects, employment, competition and product and process innovation. There are a small number of research available that explain the behaviour of local companies when FDI take place. Nevertheless, there are many research that explain the benefits for the local economy. Foreign direct investment can increased indirect productivity for host country companies through the realization of external economies. Generally these benefits indicates the importance of the way in which the influence is transmitted that referred as “spillovers” (BlomstrOrn,

From 1979-2000, China pursued a policy this promoted FDI related to export promotion, which contributed to Taiwan and Hong Kong investment, because it helped it helped protect China’s local businesses. Market driven FDI, which is primarily what the US, EU and Japan are interested in investing, was limited in China because it would potentially hurt Chinese firms due to intense competition from western firms (Naughton, 403). The “western” firms were less interested in investing in China for export purposes, but rather wanted to take advantage of the massive market for consumer products present in China (Zhang, 294). Because of this, Taiwan and Hong Kong investment contributed a larger amount to FDI in China than compared with the US, EU

FDI grew quickly in the 1990’s. The U.S is the top destination of FDI and China and Brazil are in top five. The reasons for the increased activity were the opening of markets due to trade liberalisation and deregulation, pressure of competition brought about globalisation and technological changes, the importance of size as a factor in creating economies of scale and the desire to strengthen market position.

Foreign Direct Investment (FDI) has been considered important for the growth of a country. When the individuals or companies from a country invest in another country, it is regarded as FDI. FDI not only strengthens the manufacturing base of the host country but also contributes to the strengthening of the economic outlook. FDI can be seen as an investment that leads directly to job creation in an economy. The unemployment rate decreases due to FDI, which leads to stability in economic, social and political spheres. This leads to establishing the notion that FDI is necessary for a country because it helps in strengthening the economy of a particular country. Ireland has been benefitted by

Foreign Direct Investment is the direct investment in new facilities or companies to expand a business in a new country. In evaluating and analyzing East Asia, it is important to focus on cultural issues as they are major indicators of the business environment and implementation in a given local. East Asia, including China, only began opening up for foreign investment in the 1970s. Japan is considered a developing market, where the rest of Eastern Asia is an emerging market, the majority of FDI around the world is targeted to developing nations due to increased stability, consumer culture, and large markets. The risk of emerging markets is greater than in developed, thus yielding a greater return on investment when the endeavor succeeds.

The correlation between foreign direct investment (FDI) and economic growth is well documented see (Borensztein, De Gregorio, J-W. Lee 98). Even though there has been an extensive amount of research, which includes both FDI and economic growth, there still seems to be a substantial divide between the results; which are concluded within these papers. To begin in this research paper we will define foreign direct

The expected sign for the slope coefficient (β2) on GDP is positive which signify relationship between FDI and GDP to be positive after several journals have been study. According to Chowdhury and Mavrotas (2006), a bidirectional causality relationship found between GDP and FDI in the case of Malaysia. It indicates that the FDI and GDP have significant relationship and will affect one and another in the same direction.

The table 1.1 shows inflows of FDI in countries in different income groups. The largest increase in FDI/GDP ratio has been in

One of the studies is done by the Dar et al (2003). This study summaries the long term relationship between FDI and Economic Growth. It gives

Many writers have tried to figure out if there is a direct link between Foreign direct investment (FDI) and economic growth of an economy in terms of Gross domestic product (GDP) but a reliable procedure hasn’t been found yet.