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

Supporters of Transnational Corporations (TNC) say that their operation in “third world” country, also known as a “developing country”, benefits both the home country (where the TNC is based) and the host country (where they operate). TNCs construct facilities, make infrastructure improvements, and employ local people, all activities that should improve the economy of a host nation. Many host nations hope that there will be a multiplier effect from the direct investment by a transnational corporation, known as foreign direct investment, or FDI. That multiplier is expected to ripple across all other sectors of their economy – benefitting everyone.

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.

Inward foreign investment is believed to boost the economic growth of host countries directly through employment creation and capital formation, and indirectly through knowledge, technology, and information spillovers. Multinationals have superior technologies, technical know-how, and managerial and marketing experiences than domestic firms. Similarly, exporting firms, domestic or foreign, have advantages over non-exporting firms regarding access to advanced technologies that are more productive and efficient. However, multinationals and exporters may not fully internalize the benefits of these assets. The benefits may spillover to domestic and non-exporting firms through market interactions, competition, and public nature of the assets.

As we discuss in the second chapter, inward foreign investment is believed to boost the economic growth of host countries directly through employment creation and capital formation, and indirectly through knowledge, technology, and information spillovers. Multinationals have superior technologies, technical know-how, and managerial and marketing experiences than domestic firms. Similarly, exporting firms, domestic or foreign, have advantages over non-exporting firms regarding access to advanced technologies that are more productive and efficient. However, multinationals and exporters may not fully internalize the benefits of these assets. The benefits may spillover to domestic and non-exporting firms through market interactions,

〖FDI〗_. represents the foreign direct investment inflow into partner countries (in current USD). An inflow of cash will lead to a temporary financial solvency in recipient countries, which enables the consumers of those countries to buy more differentiated products. However, because it is a temporary cash inflow, the FDI inflow might have an inverse effect as well and therefore the predicted sign for this variable was indeterminate. The results of regression analysis indicate that the FDI coefficient is -0.03 which indicates a negative relationship with the logistic transformation of IIT, but the parameter estimate is statistically insignificant.

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).

Foreign direct investment (FDI) is created when a company buys assets in foreign country and invest in foreign countries property, plant or equipment, and also the participation a joint venture with a foreign local company. In addition, when a company begins FDI, the company will become a multinational company. Foreign direct investment has been spreader significantly in the previous two decades through the world economy. More and more countries and sectors has constitute to become one of the international foreign direct investment network. An important force creating better global economic combination are represented by different types of FDI. (Mody, 2004). In the following discussion, there will be reasons why China remained

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.

Foreign direct investment plays a critical role in financing the development of emerging economies. Foreign direct investment benefits countries through a transfer of resources in the form of capital, technology, management of resources, creation of work opportunities, and a positive impact on the country’s balance sheet, typically through an increase in export volumes. These benefits are essential for sustainable growth and development of a country, especially for developing countries. Despite the important role that foreign direct investment plays in helping to achieve the Sustainable Development Goals, many developing countries face challenges in accessing this source.

Investment in foreign markets represents an untapped resource for many Australian investors. This report will investigate the benefits and challenges in assigning part of a portfolio into overseas companies. The first section will look at the literature relating to international portfolio management and the second part will deal with the importance of corporate governance.

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.

Whether a country will face a trade-off between the accumulation of wealth and consolidation of power depends on the type of international economic exchange the country is involved in as well as the nature of the state. In this essay, I consider trade, currency exchange and foreign investment as the primary economic exchanges that countries are involved in, as well as the different natures of states such as developing economies and industrialized nations. I argue that countries involved in international economic exchange will have to compromise between the accumulation of wealth and the consolidation of power in the short-term to maximize both in the long term. I also put forward that the primary objectives of states would be to advance both wealth and power at the same time, with harmonious objectives. However, because national interests drive international policies, one will eventually be prioritized over the other. By looking at trade, currency exchange, and foreign investment I assume that global powers will always favor agreements that benefit their national interests, or maintain their current position as economic and political powers in the international arena.

Arindam K. Bhattacharya and David C. Michael (2008) says that tariff barriers have been lowered and foreign investment have been permitted, multinationals have rushed into countries and it appeared like they would quickly defeat the local rival and capture the market for every product or services. Poor nations like Brazil, Mexico, India, and Russia were assuring that local enterprise would be washed out by

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