Foreign Investment And Its Impact On The Economic Growth Of Host Countries Essay

Within this frame, the literature considered in this overview assumes that FDI is good as a matter of fact. As Jensen puts it, foreign investment “is an engine of employment, technological progress, productivity improvements, and ultimately economic growth. FDI provides both physical capital and employment possibilities that may not be available in the host market. More importantly, FDI is a mechanism of technology transfer between countries, particularly to the less-developed nations” (Jensen, 2003: 587; See also Li & Resnick, 2003). However, the empirical research seems to provide contradictory results (Greenaway & Kneller, 2007; Moran, Graham, & Blomström, 2005) or the outcomes are at least un-informative (Rodrik, 2012). Would be necessary also to take into account to what extent incentives and subsidies offered

With the benefits being widely seen to outweigh the disadvantages smaller companies are looking for the arrangements internationally that would best serve their interests of growth and expansion with companies from lesser developed countries now also looking to capitalize as well by creating synergies at the basic level by expanding their market horizons overseas, penetrating first and expanding as demand and relationships develop. This shift in the world economy towards greater integration and interdependence is one way of describing Globalization (Hill 2011, p.7).

While faultfinders of globalization view the remote ventures of multinational enterprises as harming fares, employments, and wages at home and abroad, a thorough survey of research into the impacts of "outside direct speculation" credits multinationals with being much more useful

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,

While China increases its investment portfolio around the world, the academic research on Chinese ODIs in Europe has also grown over the years. Before diving deeper into the topic, it is crucial to take a step back and focus on the literature on the impact of inward FDI on the host country. The three main arguments explaining the impact of inward FDI on the host country focus on the economic, political, and nuanced implications.

For example, a big corporation may choose to develop manufacturing business in a poorer country that has a comparative advantage in labor. Investors will benefit by utilizing the labor abundant workforce to meet the demands of competition, and the domestic country will experience dynamic growth from new technology, jobs, and human capital. Thus, global markets expand from FDI which is an effective source of economic development, especially in developing nations.

The foreign exchange rate is the rate when domestic currency (for example, Chinese yuan) is used to exchange foreign currency (for example, us dollar). Volatility of exchange rate has been Kamble and Honrao (2014) defined as ?the risk associated with unexpected movements in the exchange rate.? The volatility of exchange rate has great impacts on international trade and cross-country investment. The increased importance being attached to exchange rate is a result of the globalisation of modern business, the continuing growth in world trade relative to national economies, the trend towards economic integration and the rapid pace of change in the technology of money transfer. (Copeland, Laurence S. 2014). According to the announcement of People?s Bank of China at 21th July 2005, Chinese exchange rate policies changed from the dollar pegged float to the floating basket peg system. Recently, since the volatility in the forex market is growing, which makes there are increase concern about the forecasting of exchange rate movements. (Schnabl, 2008).

Some national governments press for MNCs to invest locally, create employment, improve the host country 's trade balance, transfer advanced technology and so forth (Doz, 1986).

The economy in China has always been inspiring to me, how this country made all of this civilization and how this country used its economy to overcome the barriers which it faced by used lots of methods. One of these method is the ‘’Exchange Rate Issue’’ in general is the low value of your currency to increase the investments and therefore, will increase the rate of employment. So, an important determinant of foreign trade and foreign investment is the exchange rate. A low value of Chinese RMB makes Chinese exports cheaper and investment in China more attractive if the investment is to produce for export. Many countries in the world including those in the European Union, Japan and Taiwan, have adopted the flexible exchange rate system while China adopted a fixed exchange rate up to July 2005 but the government did change the fixed rate several times in the 1980s and early 1990s relative to the US dollar as its government deemed appropriate. Most recently the Chinese government has adopted a managed floating rate with the government deciding the rate around a small band daily relative to the value of a basket of foreign currencies but the basket is not explicitly specified. There are pros and cons of the fixed and the floating exchange rate systems. (See the Appendix for a more detailed discussion.) A fixed exchange provides an anchor for the government in the conduct of its monetary and fiscal policy. It limits the discretionary power of the government in the exercise of its

After opening of the trade barriers in 1991, the foreign investment inflows have increased enormously. Foreign capital, which actually plays an important role in increasing productivity of labor and accumulation of foreign reserve in developing countries to meet the current account deficit , is consist of foreign direct investment (FDI) and foreign portfolio investment(FPI). Both have worked as an instrument of global economic integration and stimulation. Apart of providing access to the foreign capital FDI also offers modern era technology, tools of creativity, desired skill sets and other complementary skills. In addition of producing additional economic activity and generating employment, foreign investment facilitates in flow of sophisticated technology.

The focus of this research is examining the affects of foreign direct investment on economic growth. Then the research reached this question: How Does Foreign Direct Investment Effects On Host Country’s GDP (Economic Growth)? Firstly, research starting with discussing the potential of FDI to affect host country’s economic growth and argues that two important objectes for FDI affects on economic growth, inflows of physical capital and technology spillovers, and according to research the technology spillovers have the stronger effect to enhance economic growth in the host country. Using cross section analysis with the range of ten years the empirical part of the paper reached a conclusion that FDI inflows improve economic growth

McCalman (2005) tested the endogenous model for 27 most developed countries. Findings of the study showed that, in the short run majority of the countries looses due to a distribution of wealth to foreign owners of technology. However in the long run, when the TRIPS1 provided incentives to research efforts, all countries benefited. Smith (2001) examined the simultaneous impact of IPR protection on United States exports, affiliated sales and licenses to unaffiliated foreign firms in a sample of 50 developed and developing countries using a variant of the gravity equation. Results suggested that strong IPR protection increases the benefits of locating abroad and leads to increase in affiliate sales and licensing relative to exports, particularly in countries with strong initiative abilities.

Domestic firms in host countries can benefit from foreign firms through imitation and labour turnover which transfers managerial and production skills. However, foreign firms are more likely to pay higher wages than domestic firms. This would limit the spillovers from labour turnover. In addition, foreign firms are more likely to prevent technological spillovers to domestic firms to avoid competition.

It has been widely believed that Foreign Direct Investment (FDI) assists developing countries with the much-needed capital for economic growth. Part of the foreign direct investment is the inflow of up to date technology and management skills. In this paper, I will investigate to what extent foreign direct investment inflows into Ghana affects the nation 's Economic Growth and Development by addressing selected macro economic variables including GDP, Employment and Wages (Income). The Heckscher-ohlin model will be used to examine the relationship between foreign direct investment and Economic growth whiles Graphical analysis will be used to determine the effects of foreign direct investment on the selected macroeconomic variables. What has increasing FDI inflows contributed to Ghana’s economic growth? Has the contribution increased or decreased overtime? Has the effects of foreign direct investment inflows into Ghana been positive or negative? The study seeks to answer these and many more questions on the effects of foreign direct investment. I hypothesize that foreign direct investment has no significant impact on GDP but positively affects employment and wages overtime. Foreign direct investment should therefore be encouraged in developing countries like Ghana.

Investment is defined as “an essential element for growth of the country and translate economy into a robust economy” (Hemadivya and Rama Devi). Investment is what makes changes in an economy. Equity is the residual interest of a company. Investors are investing their money into a company hoping that in return they will get more than what they invested. While there is time when there is a gain in an investment; there is also time when an investment ends in a loss. There are many factors that can influence the change of price of equity share, but according to Hemadivya and Rama Devi, supply and demand is the basic factors for price of equity share. When there is an increase in purchasing of stocks, then there is a demand of the stocks