Foreign Investment and Trade

5. The modern international trade theories explain trade from a firm, rather than a country, perspective.

5. The modern international trade theories explain trade from a firm, rather than a country, perspective.

First of all, the investment flow into the host country does not produce an immediate effect but accrues benefits over a period of time and the level of the positive effect may vary from country to country. The conditions that FDI faces in the developing countries may slow down the process. The issue is that in order to make use of all benefits, which were discussed earlier, the host country has to have a certain level of education, technology, sufficient openness to trade and appropriate policy regulations. The restrictive policy or insufficient precondition state of economy of the host country will not bring the expected advantages. Moreover, the developing states having a low development level may experience certain disadvantage of the foreign direct

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.

The year 2008 marked the end of a growth cycle in international investment that started in 2004 and saw world foreign direct investment (FDI) inflows reach a historic record of $1.9 trillion in 2007. Since then FDIs have been decreasing. The fall in global FDI in 2008–2009 is the result of two major factors affecting domestic as well as international investment. First, the capability of firms to invest has been reduced by a fall in access to financial resources, both internally – due to a decline in corporate profits – and externally – due to the lower availability and higher cost of finance. Second, the propensity to invest has been affected negatively by

According to the International Monetary Fund (IMF), Foreign Direct Investment (FDI) is defined as “cross border investment where a resident in one economy has control or a significant degree of influence on the management of an enterprise in another country.” FDI in the past decade has grown intensively, exceeding the growth of world production and the growth of international trade (Dierk, 2008). Many nations are open and engage in FDI because it will benefit domestic firms. Brazil, a top emerging market, has experienced record number of FDI projects, establishing it as the second most popular global destination in terms of FDI value. The country has experienced steady growth over the past decade and is projected to keep increasing its number of FDIs.

There is growing consensus among researchers and academicians that in this globalized world the burden of private investment is increasing over Foreign Direct Investment (FDI). Because of a declining trend in public investment the task of capital formation rests over the shoulder of private investment and thus FDI playing a leading role in determining the fate of the economy. The economies receiving more inflow of FDI, are realizing a comparatively high growth and vice-versa. This is also expected to be happen in India. The present paper discusses the relationship between the inflow of FDI and GDP. It has been found that FDI has a positive correlation with GDP. the regression analysis between GDP and FDI of different sectors also supported the same result which shows that FDI inflow in India is playing very important role in determining the size of GDP.

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.

Trade and investment are highly connected that could be illustrated as two sides of the same coin. Companies conduct cross-border trade to supply their foreign investment, and they invest abroad to bolster their trade. Moreover, in the liberalisation era, while investors produce and consume both goods and services, an open trading system will provide a bright investment climate. Equally important, international trade and foreign investment have similar dominant actors through the presence of multinational enterprises.

In today’s increasingly globally integrated business world, foreign direct investment (FDI) “provides a means for creating direct, established and long-lasting links between economies,” according to the 2008 Organization for Economic Co-Operation and Development Benchmark Definition of Foreign Direct Investment (OECD, 2008, p. 14). Foreign direct investment (FDI) is defined as “an investment made to acquire lasting interest in enterprises operating outside of the economy of the investor,” by the United Nations Conference on Trade and Development (UNCTAD).9

This internationally competitive industry and sustainable growing economy of India shows the bright future of FDI in India. India is estimated to require around US $ 1 trillion during the 12th Five-Year Plan period (2012–17), to fund infrastructure in sectors such as roads, airports and ports. The government is in the process of liberalizing FDI norms in construction activities and railways, which could attract more investments to meet the target.

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.

Outside prompt endeavor (FDI) is consistently contributing in the valuable improvement toward the economy of one country in light of the hypothesis by another country or country 's personnel 's. The reasonability and adequacy of Global economy depends on the theorist 's perception, if wander seen with the inspiration driving long terms enthusiasm for the social-judicious change then it is said that the hypothesis contributes completely towards overall economy, in case it is transient with the deciding objective of making advantage then it may be less tremendous than that whole deal and disinvestment leads negative effect. The FDI may moreover be impacted due to the regulatory trade preventions and methodologies for the remote ventures and prompts less or more fruitful toward responsibility in economy furthermore GDP and GNP of the country.

High inflow of foreign investment is needed for a country to gain a high sustainable economic growth. For an economy to grow by 7 to 8 percent a year, there is a need to invest about 30 to 40 percent of GDP. FDI is good and strong developmental equipment that contributes to the economic growth of host country. This growth are contributed by the high increase of capital stocks in the host country, increase in productivity and availability or creating of new jobs. These new creation provided by FDI also leads to productivity and knowledge spillover on the domestic firm. Productivity and knowledge spillover increases when the productivity of the local firm is gained through the leading edge of technologies employed by the foreign companies. However, there is some negative impact on this because the foreign firm or investor has the ability to draw the demand away from the local firm because of the price of reduction to their new different and innovative products or goods and due to this, the local firm’s productiveness will decrease because of the market run down by the foreign firm or investor. The ability of a local firm to take the spillover benefits is dependent on how the local firm takes in the foreign firm skills and technological know how.

Foreign investment is a tool to foster the economic development in a country. It can be denied that foreign investment helps poor countries to boost their development faster than just only relying on domestic business. The first bilateral treaty was signed in 1959 between Germany and Pakistan. After World War II, European countries started to expand their business to the developing countries? markets. BITs were signed to give confidence to business players from developed states by offering more protection than just relying on domestic law. Before 1980, the protection of investment was the task of diplomatic negotiations, and when disputed, international customary law was in the eyes of ad hoc claims tribunals. International